Booth Manufacturing Uses a Job Order Costing System That Charges

question 106

Essay

Booth Manufacturing uses a job order costing system that charges overhead to jobs on the basis of direct material cost. At year-end, the Work in Process Inventory account shows the following.
$$\begin{array} { | l | l | c | r | r | } \hline \text { Date } & \text { Explanation } & \text { Debit } & \text { Credit } & \text { Balance } \\\hline \text { Dec. 31 } & \text { Direct materials cost } & 980,000 & & 980,000 \\\hline 31 & \text { Direct labor cost } & 320,000 & & 1,300,000 \\\hline 31 & \text { Overhead costs } & 637,000 & & 1,937,000 \\\hline 31 & \text { To finished goods } & & 1,818,000 & 119,000 \\\hline\end{array}$$ a. Determine the overhead rate used (based on direct material cost).
b. Only one job remained in the Work in Process inventory at December 31. Its direct materials cost is $60,000. How much direct labor cost and overhead cost are assigned to it?

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Definitions:

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Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the financial gain exceeding the opportunity costs of resources.

Implicit Costs

Non-direct payments or out-of-pocket costs, representing the opportunity costs of using resources owned by the firm for its own use.

Explicit Costs

Payments made directly to individuals or entities for business operations, including salaries, leasing costs, and supplies.