Question

The computer workstation furniture manufacturing that Santana Rey started in January is progressing well. As of the end of June, Business Solutions’s job cost sheets show the following total costs accumulated on three furniture jobs.

	Job 602	Job 603	Job 604
Direct material	\(1,500	\)3,300	\(2,700
Direct labor	800	1,420	2,100
Overhead	400	710	1,050

Job 602 was started in production in May, and these costs were assigned to it in May: direct materials, \)600; direct labor, \(180; and overhead, \)90. Jobs 603 and 604 were started in June. Overhead cost is applied with a predetermined rate based on direct labor costs. Jobs 602 and 603 are finished in June, and Job 604 is expected to be finished in July. No raw materials are used indirectly in June. (Assume this company’s predetermined overhead rate did not change over these months.)

Required

1. What is the cost of the raw materials used in June for each of the three jobs and in total?

2. How much total direct labor cost is incurred in June?

3. What predetermined overhead rate is used in June?

4. How much cost is transferred to Finished Goods Inventory in June?

Short answer

1. The business entity has used direct material of$6,900 in June.
2. Direct labor used in June was$4,140.
3. The predetermined overhead rate is50%.
4. Cost transferred to finished goods$11,280.

Step-by-step solution

Definition of Finished Goods Inventory

An account that reports the total cost of goods ready for sale to customers is the finished goods inventory. This account is reported as an asset of the business as it will generate an inflow of benefits.

Total cost of raw material used in June

Particular	Amount $
Direct material of Job 602$\left(\$1,500-\$600\right)$	$900
Direct material of Job 603	$3,300
Direct material of Job 604	$2,700
Total direct material used in June	$6,900

Total direct labor cost incurred in June

Particular	Amount $
Direct labor of Job 602$\left(\$800-\$180\right)$	$620
Direct labor of Job 603	1,420
Direct labor of Job 604	2,100
Total direct labor used in June	$4,140

Predetermined overhead rate used in June

$$\begin{gathered} Predeterminedoverheadrate=\frac{TotalofoverheadofallJobs}{TotalofDirectlaborofalljobs}\times 100 \\ =\frac{\$400+\$710+\$1,050}{\$800+\$1,420+\$2,100}\times 100 \\ =\frac{\$2,160}{\$4,320}\times 100 \\ =50\% \end{gathered}$$

Cost transferred to finished goods in June

Particular	Amount $
Completed cost of Job 602	$0
Completed cost of Job 603 $\left(\$3,300+\$1,420+\$710\right)$	5,430
Completed cost of Job 604 $\left(\$2,700+\$2,100+\$1,050\right)$	5,850
Cost transferred to finished goods	$11,280