Question

Lorenzo Company uses a job order costing system that charges overhead to jobs on the basis of direct materials cost. At year-end, the Work in Process Inventory account shows the following.

Date Explanation Debit Credit Balance
2017
Dec. 31 Direct materials cost 1,500,000 1,500,000
31 Direct labor cost 300,000 1,800,000
31 Overhead applied 600,000 2,400,000
31 To finished goods 2,350,000 50,000
1. Determine the predetermined overhead rate used (based on direct materials cost).
2. Only one job remained in work in process inventory at December 31, 2017. Its direct materials cost is $30,000. How much direct labor cost and overhead cost are assigned to this job?

Answer 1

The predetermined overhead rate used is 40%. For the job with a direct materials cost of $30,000, the direct labor cost assigned to it is $12,000 and the overhead cost assigned to it is $12,000 as well.

Step-by-step explanation:

To determine the predetermined overhead rate based on direct materials cost, we need to divide the total overhead applied by the total direct materials cost.

Predetermined Overhead Rate = Overhead Applied / Direct Materials Cost

Predetermined Overhead Rate = $600,000 / $1,500,000

Predetermined Overhead Rate = 0.4 or 40%

Therefore, the predetermined overhead rate used is 40%.

To calculate the direct labor cost and overhead cost assigned to the job, we need to multiply the direct materials cost of the job by the predetermined overhead rate.

Direct Labor Cost = Direct Materials Cost * Predetermined Overhead Rate

Direct Labor Cost = $30,000 * 0.4

Direct Labor Cost = $12,000

Overhead Cost = Direct Materials Cost * Predetermined Overhead Rate

Overhead Cost = $30,000 * 0.4

Overhead Cost = $12,000

Answer 2

Answer and Explanation:

The computation is shown below:

a. The predetermined overhead rate is

= Overhead applied ÷ direct material cost

= $600,000 ÷ $1,500,000

= 40%

2. The direct labor cost and the overhead cost assigned is

= Total cost in process - applied overhead - material cost

= $50,000 - ($30,000 × 0.40) - $30,000

= $8,000

Hence, the same would be considered