Question

Jefferson Company, a commercial painting contractor, uses a normal-costing system to cost each job. Its job-costing system has two direct-cost categories (direct materials and direct labor) and one indirect-cost pool called overhead costs. To each job, Jefferson allocates overhead at a budgeted rate of 80% of direct labor costs.

Jefferson provides the additional information for February:

1. As of February 1, Job A21, the only job in process, had incurred direct material costs of $30,000 and direct labor costs of $50,000.

2. Jobs A22, A23, and A24 were started in February.

3. Direct materials used during February were $150,000.

4. Direct labor costs for February were $120,000.

5. Actual overhead costs for February were $102,000.

6. On February 28, Job A24 was the only job still in process, and it had incurred direct materials costs of $20,000 and direct labor costs of $40,000.

As each job is completed, its cost is transferred to the Cost of Jobs Billed account. Each month, Jefferson closes any under-or over-allocated overhead to Cost of Jobs Billed.

1. Give one example of a direct cost and one example of an overhead cost for a job undertaken by Jefferson Company.

2. Calculate the overhead allocated to Job A21 as of February 1.

3. Calculate the overhead allocated to Job A24 as of February 28.

4. Calculate the under- or overallocated overhead for February.

5. Calculate ending balance of jobs still in process as of February 28.

6. Compute the Cost of Jobs Billed for February.

Answer 1

Jefferson Company

1. An example of a direct cost is the cost of direct raw materials. An example of an overhead cost is cost of factory repairs and maintenance.

2. The overhead allocated to Job A21 as of February 1 is $40,000.

3. The overhead allocated to Job A24 as of February 28 is $32.000.

4. The under-allocated overhead for February is $6,000

5. The ending balance of jobs still in process as of February 28 is $92,000.

6. The Cost of Jobs Billed for February is $394,000.

Step-by-step explanation:

a) Data and Calculations:

Budgeted overhead allocation rate = 80% of direct labor costs

Beginning WIP:

Materials $30,000

Direct labor 50,000

Overhead 40,000 ($50,000 * 80%)

Overhead allocated to Job A21 as of February 1 = $40,000 ($50,000 * 80%)

Overhead allocated to Job A24 as of February 28 = $32,000 ($40,000 * 80%)

Total overhead allocated for February = $96,000 ($120,000 * 80%)

Actual overhead costs incurred = $102,000

Therefore, the under-allocated overhead for February = $6,000

The ending balance of jobs still in process as of February 28 (Job A24) =

Materials costs = $20,000

Labor costs = $40,000

Overhead applied = $32,000

Total costs = $92,000

Cost of Jobs Billed:

Beginning WIP: Cost of Job A21 = $120,000 ($30,000 + 50,000 + 40,000)

Costs incurred during the period:

Cost of Direct Materials 150,000

Cost of Direct Labor 120,000

Allocated overhead costs 96,000

Total costs of production = $486,000

Less Ending WIP (Job A24) = 92,000

Cost of Jobs Billed for February $394,000