Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 32

Incomplete Data: Job Costing

Chelsea Household Renovations (CHR) is a rapidly growing company that has not been profitable despite increases in sales. It has hired you as a consultant to find ways to improve profitability. You believe that the problem results from poor cost control and inaccurate cost estimation on jobs. The company has essentially no accounting system from which to collect data. You are able, however, to piece together the following information for June:

• Production

(1) Completed Job 61.

(2) Started and completed Job 62.

(3) Started Job 63.

• Inventory values

1. Work-in-process inventory (excluding applied overhead):

May 31: Job 61
Direct materials	$ 4,000
Labor (960 hours × $20)	19,200

?

June 30: Job 63
Direct materials	$ 3,200
Labor (1,040 hours × $20)	20,800

• Each job in work-in-process inventory was exactly 50 percent completed as to labor-hours; however, all direct materials necessary to do the entire job were charged to each job as soon as it was started.

• There were no direct materials inventories or finished goods inventories at either May 31 or June 30.

• Actual overhead was $40,000.

• Cost of goods sold (before adjustment for over- or underapplied overhead):

Job 61
Materials	$4,000
Labor	?
Overhead	?
Total	$61,600

Job 62
Materials	?
Labor	?
Overhead	?
Total	?

• Overhead was applied to jobs using a predetermined rate per labor dollar that has been used since the company began operations.

• All direct materials were purchased for cash and charged directly to Work-in-Process Inventory when purchased. Direct materials purchased in June amounted to $9,200.

• Direct labor costs charged to jobs in June were $64,000. All labor costs were the same per hour for all laborers for June.

Required

Write a report to management to show:

a. The cost elements (material, labor, and overhead) of cost of goods sold before adjustment for over- or underapplied overhead for each job sold.

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b. The value of each cost element (material, labor, and overhead) for each job in work-in-process inventory at June 30.

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c. Over- or underapplied overhead for June.

Step 1 of 5

a.

Cost elements (Material, Labor and overhead) of cost of goods sold before adjustment for over or under applied overhead for each job sold is as under:

Job 61

• Material Cost is $4,000 (given in question)

• Labor Cost is $19,200 plus $19,200 as on May 31 job was 50% completed as to labour hours.

• Overhead was applied to using a predetermined rate when company begin operations and the rate in current case is $20.

So Overhead Cost for Job 61 is $19,200 (960hours *20)