Applying Overhead to Jobs, Costing Jobs

Jagjit Company designs and builds retaining walls for individual customers. On August 1, there were two jobs in process: Job 93 with a beginning balance of $8,750 and Job 94 with a beginning balance of $7,300. Jagjit applies overhead at the rate of $8 per direct labor hour. Direct labor wages average $18 per hour. Data on August costs for all jobs are as follows:

Job 93 Job 94 Job 95 Job 96. Direct materials $950 $4,500 $3,300 $1,300. Direct labor cost 2,160 5,400 2,610 900.

During August, Jobs 95 and 96 were started. Job 93 was completed on August 17, and the client was billed at cost plus 40%. All other jobs remained in process.

Required:

Solution

1. Calculate the number of direct labor hours worked on each job in August:

Direct labor cost per hour = $18

Number of direct labor hours (DLH) per job = Direct labor cost ÷ Direct labor cost per hour

For each job:

Job 93: Direct labor cost = $2,160DLH = $2,160 ÷ $18 = 120 hours


Job 94: Direct labor cost = $5,400DLH = $5,400 ÷ $18 = 300 hours


Job 95: Direct labor cost = $2,610DLH = $2,610 ÷ $18 = 145 hours


Job 96: Direct labor cost = $900DLH = $900 ÷ $18 = 50 hours

2. Calculate the overhead applied to each job during August:

Overhead rate per direct labor hour = $8

For each job:Job 93: Overhead applied = 120 hours × $8 = $960

Job 94: Overhead applied = 300 hours × $8 = $2,400

Job 95: Overhead applied = 145 hours × $8 = $1,160

Job 96: Overhead applied = 50 hours × $8 = $400

3. Prepare job-order cost sheets for each job as of August 31:

4. Calculate the balance in Work in Process (WIP) on August 31:

The WIP includes Jobs 94, 95, and 96, as Job 93 was completed. WIP balance = Total cost of Jobs 94, 95, and 96

Job 94 = $19,600

Job 95 = $7,070

Job 96 = $2,600

WIP balance = $19,600 + $7,070 + $2,600 = $29,270

5. What is the price of Job 93?

Job 93 was billed at cost + 40%.

Total cost of Job 93 = $12,820

Price = $12,820 + (40% × $12,820) = $12,820 + $5,128 = $17,948

Create a separate job for the acquisition and use of the bulldozer. Treat the bulldozer’s depreciation, fuel, maintenance, etc. as overhead costs. Divide this by the anticipated annual hours of use to arrive at the overhead rate.