Sheds, Inc. designs and builds sheds and outbuildings for individual customers.

Question

Sheds, Inc. designs and builds sheds and outbuildings for individual customers.

The company uses a job cost system and treats each customer's order as a separate job.

At the beginning of January the company had the following raw material inventory:

$600

At the beginning of January the company had the following work-in-process inventories:

Job 21

$13,000

Job 25

$9,000

During January, the following activities took place:

1. Started jobs 26 and 27.

2. Purchased raw materials in January:

$12,000

Requisitioned (or used) the following raw materials to the specific jobs:

Job 21

$2,000

Job 25

$5,000

Job 26

$1,000

Job 27

$3,000

3. Incurred January manufacturing payroll:

Direct Labor

Job 21

$750

Job 25

$2,000

Job 26

$900

Job 27

$1,500

Indirect labor

$600

4. Incurred additional manufacturing overhead costs for January:

Production equipment rent

$2,000

Manufacturing supplies purchased and used

$800

Factory utilities

$500

5. Applied manufacturing overhead using a predetermined rate based on predicted annual overhead

and predicted annual direct material cost as follows:

Predicted Annual Overhead

$48,000

Predicted Annual Direct Material cost

$120,000

6. Completed jobs 25 and 27.

7. Customer for Job 27 picked up completed job and was billed the following:

Job 27

12,000

8. The company had the following period costs that they incurred:

Sales commissions

$2,000

Administrative salaries

$3,000

1. Develop the predetermined overhead rate.

2. Complete the job cost sheets provided below for the month of January:

Job 21

Job 25

Job 26

Job 27

Beginning Balance

Current costs:

Direct materials

Direct Labor

Applied overhead

Total

Sheds, Inc. designs and builds sheds and outbuildings for individual customers.

The company uses a job cost system and treats each customer's order as a separate job.

At the beginning of January the company had the following raw material inventory:

$600

At the beginning of January the company had the following work-in-process inventories:

Job 21

$13,000

Job 25

$9,000

During January, the following activities took place:

1. Started jobs 26 and 27.

2. Purchased raw materials in January:

$12,000

Requisitioned (or used) the following raw materials to the specific jobs:

Job 21

$2,000

Job 25

$5,000

Job 26

$1,000

Job 27

$3,000

3. Incurred January manufacturing payroll:

Direct Labor

Job 21

$750

Job 25

$2,000

Job 26

$900

Job 27

$1,500

Indirect labor

$600

4. Incurred additional manufacturing overhead costs for January:

Production equipment rent

$2,000

Manufacturing supplies purchased and used

$800

Factory utilities

$500

5. Applied manufacturing overhead using a predetermined rate based on predicted annual overhead

and predicted annual direct material cost as follows:

Predicted Annual Overhead

$48,000

Predicted Annual Direct Material cost

$120,000

6. Completed jobs 25 and 27.

7. Customer for Job 27 picked up completed job and was billed the following:

Job 27

12,000

8. The company had the following period costs that they incurred:

Sales commissions

$2,000

Administrative salaries

$3,000

1. Develop the predetermined overhead rate.

2. Complete the job cost sheets provided below for the month of January:

Job 21

Job 25

Job 26

Job 27

Beginning Balance

Current costs:

Direct materials

Direct Labor

Applied overhead

Total

Explanation / Answer

1) Predetermined overhead rate predicted annual overhead/predicted annual direct material cost 48,000/120,000 0.4 $.04 or 40% 2) Job cost sheets job 21 job25 job26 job27 Beginning balance 13,000 9,000 Current costs: Direct materials 2,000 5,000 1,000 3,000 Direct labor 750 2,000 900 1,500 Applied overhead 800 2000 400 1200 total 16,550 18,000 2300 5700 Applied overhead = direct material of respective job *40%

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