CALIFORNIA COMPANY   …

 CALIFORNIA COMPANY

…. Uses job order costing.  At the start of the year, January 1, the company had work-in-process which consisted of the following jobs and costs:

During the first quarter, four more jobs were started – Job 4, Job 5, Job 6 & Job 7.  The following cost information is available for costs incurred during the month of January:

During the quarter, jobs 1, 3, 4 and 6 were all completed.  In addition, Jobs 3 and 6 were sold before the end of the quarter.

The company uses normal costing and closes under- and over-applied overhead directly to Cost of Goods Sold. There was no finished-goods inventory at the start of the period. Selling and administrative expenses totaled $3,986 for the quarter.  Actual overhead for the quarter totaled $19,000.  The company had no other non-operating gains or losses.  Assume a tax rate of 35%.

Required:

1. The company applies overhead based on direct labor cost – compute the predetermined overhead rate.

2. Set up summary work in process T-accounts and job cost sheets for each job for the first quarter.

3. Calculate the ending balance for each job as of March 31.

4. Calculate the ending balance in work-in process as of March 31.

5. Calculate the cost of goods manufactured for the quarter.

6. Calculate the normal (unadjusted) cost of goods sold for the quarter.  Calculate the adjusted cost of goods sold.  WHY are they different?  Why do we need both?  What is the reason for the normal cost of goods sold?

7. During the quarter, did finished goods inventory increase or decrease AND by how much?  WHY?
8. Compute the over/underapplied overhead for the quarter.
9. Assuming that the company prices its jobs at full cost plus 50%, calculate the sales revenue for the quarter.
10. Prepare an income statement for the first quarter.

11. WHY would the company use normal costing versus actual costing?