Question

Sigma Corporation applies overhead cost to jobs on the basis of direct labor cost. Job V, which was started and completed during the current period, shows charges of $5,000 for direct materials, $8,000 for direct labor, and $6,000 for overhead on its job cost sheet. Job W, which is still in process at year-end, shows charges of $2,500 for direct materials and $4,000 for direct labor. Required: 1a. Should any overhead cost be applied to Job W at year-end? Yes No 1b. How much overhead cost should be applied to Job W? 2. How will the costs included in Job W’s job cost sheet be reported within Sigma Corporation’s financial statements at the end of the year? Raw Materials Work-in-Process Finished Goods

Answer 1

1.a Yes

1. b $3,000

2. Work-In-Process

Explanation:

1. a. Overhead rate in percentage = Total overhead ÷ Direct labor

= $6,000 ÷ $8,000

= 75%

Yes, Overhead cost will be applied on Job W at the year end

b. Overhead Cost = Direct Labor Cost × Overhead rate in percentage

= $4,000 × 75%

= $3,000

2. In the Financial statement cost included in Job W's will be recognized as Work-In-Process