Jackson Company applies overhead to products using a pre-determined rate of $11.
ID: 2394193 • Letter: J
Question
Jackson Company applies overhead to products using a pre-determined rate of $11.20 per direct labor hour. During 2019, Jackson Company began work on three jobs. Information relating to these three jobs appears below: Job #359 Job #360 Job #361 direct materials .............. $98,000 $75,000 $91,000 direct labor cost ............. $98,600 $79,900 $86,700 direct labor hours ............ 5,100 4,700 5,800 By the end of 2019, job #359 and job #361 had been completed. Job #360 was not completed by the end of 2019. Additionally, by the end of 2019, job #361 had been sold while job #359 was not sold. Jackson Company had total actual overhead cost of $169,000 during 2019. Calculate the amount of finished goods inventory reported in Jackson Company's December 31, 2019 balance sheet.
Explanation / Answer
Answer:-
Applied overhead = (5800+4700+5100)*11.20 = $ 174,720
Actual overhead = 169000 ( Given )
Overhead Under applied = (174720-169000) = 5720 ( benefit to the organization, a Favourable Variance )
This Benefit should be allocated to each Job Using Direct Labour Hours
Total Hours Worked = +5100+4700+5800 = 15,600 Hours
Apportioned Benefit =
Job 359 = ( 5100 / 15600 ) * 5720 = $1870
Job 360 = (4700 / 15600 ) * 5720 = $1723
Job 361 = ( 5800 / 15600 )*5720 = $2127
As Job # 359 and # 361 Completed but only Job # 361 was sold during the year
The finished goods inventory is Job # 359 only because job #360 is yet to be completed.
so Cost of Job # 359 :-
Direct Material = $98,000
Direct Labour = $98,600
Overhead = 5100 * 11.20 = 57,120
Total Cost of Job # 359 = 98000+98600+57120 = $ 253,720
Minus Benefited Calculated above of Favourable Variance = 253720 - 1870 = $ 251,850 ( Cost of Finished Goods Inventory)
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