The following selected data were taken from the books of the Bixby Box Company.

Question

The following selected data were taken from the books of the Bixby Box Company. The company uses job costing to account for manufacturing costs. The data relate to June operations. Materials and supplies were requisitioned from the stores clerk as follows: Job 405, material X, $13,500. Job 406, material X, $5,670; material Y, $11,610. Job 407, material X, $13,500; material Y, $6,210. For general factory use: materials A, B, and C, $4,320. Time tickets for the month were chargeable as follows: Other information: Factory paychecks for $70,470 were issued during the month. Various factory overhead charges of $35,235 were incurred on account. Depreciation of factory equipment for the month was $6,700. Factory overhead was applied to jobs at the rate of $3.00 per direct labor hour. Job orders completed during the month: Job 405 and Job 406. Selling and administrative costs were $4,050. Factory overhead is closed out only at the end of the year. If Job 406 was sold on account for $80,190, how much gross profit would be recognized for the job?

Explanation / Answer

Hi Under the Job Costing Method, all costs which are associated with a particular Job are computed. For this, the first step is to divide the total costs into Direct Cost and Indirect Costs. Direct Costs are those costs which can be traced to the Job exclusively. These include Direct Material Cost and Direct Labor Cost Indirect Costs are those costs which are incurred during the manufacture process but which cannot be traced exclusively to any one job. These include general factory material, indirect labour, etc. We will now prepare a Job Sheet for Job 406 Direct Material Cost Material X $5,670.00 Material Y $11,610.00 $17,280.00 Direct Labour Cost 4900 Hours $27,000.00 $27,000.00 Factory Overhead Allocated $3 Per Direct Labour Hour $14,700.00 $14,700.00 Total Cost for Job 406 $58,980.00 We have not considered the Factory Overhead Costs separately as the Predetermined rate of allocating Overhead is already provided to us. Now, As the Job 406 was sold on account for $80,190; Gross Profit earned on it would be: Sale Value $80,190.00 Less: Total Cost $58,980.00 Gross Profit $21,210.00 Hope it Solves your doubts! :-)

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