Job 39 Job 40 Job 41 Job 42 Beginning balance Materials requisitioned Direct labor cost $23,700 18,900 10,000 $34,600 21,400 18,500 $17,000 8,350 3,000 $ 0 12,000 2,900
Naranjo Company designs industrial prototypes for outside companies.
Budgeted overhead for the year was $260,000, and budgeted direct labor
hours were 20,000. The average wage rate for direct labor is expected to
be $25 per hour. During June, Naranjo Company worked on four jobs.
Data relating to these four jobs follow:
Overhead is assigned as a percentage of direct labor cost. During June,
Jobs 39 and 40 were completed; Job 39 was sold at 130 percent of cost.
(Naranjo had originally developed Job 40 to order for a customer;
however, that customer was near bankruptcy and the chance of Naranjo
being paid was growing dimmer. Naranjo decided to hold Job 40 in
inventory while the customer worked out its financial difficulties. Job 40
is the only job in Finished Goods Inventory.) Jobs 41 and 42 remain
unfinished at the end of the month.
Required:
1. Calculate the overhead rate based on direct labor cost.
2. Set up a simple
June
3. What if the expected direct labor rate at the beginning of the
year was $20 instead of $25? What would the overhead rate be?
How would the cost of the jobs be affected?
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