MOB Corp Applies Overhead on the Basis of Direct Labor Costs

question 121

Essay

MOB Corp. applies overhead on the basis of direct labor costs. Its bookkeeper accidentally deleted most of the journal entries that had been recorded for January. A printout of the general ledger (in T-account form) showed the following:

A review of the prior year's financial statements, the current year's budget, and January's source documents produced the following information:
(1) Accounts Payable is used for raw material purchases only. January purchases were $49,000.
(2) Factory overhead costs for January were $17,000 none of which is indirect materials.
(3) The January 1 balance for finished goods inventory was $10,000.
(4) There was a single job in process at January 31 with a cost of $2,000 for direct materials and $1,500 for direct labor.
(5) Total cost of goods manufactured for January was $90,000.
(6) All direct laborers earn the same rate ($13/hour). During January, 2,500 direct labor hours were worked.
(7) The predetermined overhead rate is based on direct labor costs. Budgeted (expected) overhead for the year is $195,000 and budgeted (expected) direct labor is $390,000.
Fill in the missing amounts a) through o) above in the T-accounts above.

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Definitions:

Annual Target ROI

The desired return on investment set by a business for a specific fiscal year, guiding financial and operational decisions.

Specific Product Class

A distinct category or group of products that share common attributes or functionalities.

Customary Pricing

Pricing strategy based on traditional costs and prices within an industry or market, often influenced by standard practices and competition.

Standardized Channel

A distribution or marketing channel that follows a uniform set of policies and procedures to ensure consistent quality and service.