Lorenzo Company uses a job order costing system that charges overhead to iob mat

Question

Lorenzo Company uses a job order costing system that charges overhead to iob material cost. At year-end, the Work in Process Inventory account shows the follown the basis following. Work in Process Inventory Acct. No. 121 Debit Credit Balance Date Explanation 1,500,000 300,000 600,000 2015 5 Dec. 31 31 31 31 Direct materials cost Direct labor cost Overhead applied To finished goods 1,500,000 1800,000 2,400,000 50,000 2,350,000 1. Determine the predetermined overhead rate used (based on direct material cost). 2. Only one job remained in work in process inventory at December 31, 2015. Its direct materials costi $30,000. How much direct labor cost and overhead cost are assigned to this job?

Explanation / Answer

Answer (1)

Predetermined overhead rate based on direct material = Total Overheads / Total Direct Material x 100

Predetermined Overhead Rate = 600000 / 1500000 x 100  

Predetermined Overhead Rate = 40%

This means that overhead cost will be 40% of direct material used.

Answer (2)

So in work in process inventory Direct material is $30000, Direct Labor is $8000 and Overhed is $12000.

Total Cost of work in progress 12/31/2015 (Provided) 50000 Less: Direct Material Cost in WIP (Provided) 30000 Balance 20000 Less: Overhead Cost (40% of Direct Material used on the basis of predetermined rate of overhead) (40% of 30000) 12000 Balance (Direct Labour in WIP) 8000

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