Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $260,000, and budgeted direct labor hours were 20,000. The average wage rate for direct labor is expected to be $25 per hour. During June, Naranjo Company worked on four jobs. Data relating to these four jobs follow: Job 39 Job 40 Job 41 Job 42
Beginning balance $23,700 $34,600 $17,000 $0
Materials requisitioned 18,900 21,400 8,350 12,000
Direct labor cost 10,000 18,500 3,000 2,900

Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 120 percent of cost. (Naranjo had originally developed Job 40 to order for a customer; however, that customer was near bankruptcy and the chance of Naranjo being paid was growing dimmer. Naranjo decided to hold Job 40 in inventory while the customer worked out its financial difficulties. Job 40 is the only job in Finished Goods Inventory.) Jobs 41 and 42 remain unfinished at the end of the month.

Required:
a. Calculate the overhead rate based on direct labor cost.
b. Set up a simple job-order cost sheet for all jobs in process during June.

Naranjo Company

a. The overhead rate = $0.52 or 52%.

b. Job-order Cost Sheet:

                                        Job 39      Job 40       Job 41       Job 42   Total

Beginning balance         $23,700    $34,600    $17,000    $0          $75,300

Materials requisitioned    18,900        21,400       8,350      12,000    60,650

Direct labor cost               10,000        18,500       3,000       2,900    34,400

Overhead applied             5,200         9,620        1,560        1,508     17,888

Total production costs $57,800      $84,120    $29,910    $16,408 $188,238

Explanation:

a) Data and Calculations:

Budgeted overhead for the year = $260,000

Budgeted direct labor hours = 20,000

Direct labor rate = $25 per hour

Total budgeted direct labor cost = $500,000 ($25 * 20,000)

Predetermined overhead rate, based on direct labor cost

= $260,000/$500,000 * 100 = 52% or $0.52

Job Sheet:

                                        Job 39      Job 40       Job 41       Job 42   Total

Beginning balance         $23,700    $34,600    $17,000    $0          $75,300

Materials requisitioned    18,900        21,400       8,350      12,000    60,650

Direct labor cost               10,000        18,500       3,000       2,900    34,400

Overhead applied             5,200         9,620        1,560        1,508      17,888

Total production costs $57,800      $84,120    $29,910   $16,408  $188,238

Applied Overhead:

Job 39: $10,000*52% = $5,200

Job 40: $18,500*52% = $9,620

Job 41: $3,000*52% = $1,560

Job 42: $2,900*52% = $1,508

Sales revenue             $69,360 ($57,800 * 120%)

Cost of goods sold     $57,800

Finished goods inventory               $84,120

Work in progress inventory                              $29,910    $16,408

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