The Bristol Company uses a job-order cost system. The following data were recorded for June:$\begin{array}{lrr}
& \text {June 1 } && \text {Added During June } \
&\text {Work in Process } & \text { Direct} & \text {Direct}\\\end{array}$
$\begin{array}{lrr}\text { Job Number} &\text { Stock }& \text { Materials }&\text { Labour }\
235 & £ 2,500 & £ 600 &£ 400 \
236 &£ 1,500 & £ 800 & £ 1,000 \
237 & £ 1,000 & £ 1,200 & £ 1,750 \
238 & £ 800 & £ 1,500 &£ 2,250
\end{array}$

In the previous question overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers.
Assume that the company wants to recalculate the overhead rate and now wants to charge overhead to production at 75% of direct material cost. Bristol Company's cost of goods sold for June would change to:

A)£15,520.
B)£10,170.
C)£ 9,625.
D)£14,640.

Question

The Bristol Company uses a job-order cost system. The following data were recorded for June:$\begin{array}{lrr}
&  \text {June 1   } && \text {Added During June  } \
 &\text {Work in Process  } & \text { Direct} & \text {Direct}\\\end{array}$
$\begin{array}{lrr}\text { Job Number} &\text {  Stock }& \text { Materials }&\text { Labour }\
235 & £ 2,500  & £ 600  &£ 400  \
236 &£ 1,500 & £ 800  & £ 1,000  \
237 & £ 1,000 & £ 1,200 & £ 1,750 \
238 & £ 800 & £ 1,500 &£ 2,250 
\end{array}$

In the previous question overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers.
Assume that the company wants to recalculate the overhead rate and now wants to charge overhead to production at 75% of direct material cost. Bristol Company's cost of goods sold for June would change to:

A)£15,520.
B)£10,170.
C)£ 9,625.
D)£14,640.

Quizplus · Accepted Answer

To calculate the revised overhead rate, we need to use the formula: 
Revised Overhead Rate = Estimated Overhead Costs / Estimated Direct Material Costs x 100%
Using the new information, the Revised Overhead Rate = £7,740 / £10,320 x 100% = 75%

To calculate the cost of goods sold, we need to use the formula: 
Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory
The Cost of Goods Manufactured is calculated as: 
Direct Materials Used + Direct Labor + Manufacturing Overhead Applied
Using the new overhead rate of 75%, the Manufacturing Overhead Applied would be: 
Manufacturing Overhead Applied = Direct Materials Cost x 75% = £7,740

So, the Cost of Goods Sold = £0 + (£12,700 + £3,840 + £7,740) - £4,655 = £19,625 - £4,655 = £14,970

Therefore, the correct answer is C) £9,625.

The Bristol Company Uses a Job-Order Cost System In the Previous Question Overhead Is Charged to Production at Data