Deco Corporation uses a job costing system. On January 1, Deco corporations work in process inventory account had a balance of $76,000. During the year, materials requisitioned for use in production amounted to $120,100, of which $82,800 represented direct materials. Factory wages for the period were $231,000, of which $220,000 were for direct labor. Manufacturing overhead is allocated on the basis of 80% of direct labor cost. Actual overhead cost for the year was $125,100. Jobs costing $336,500 were completed during the year. The December 31 work in process inventory balance is

Question

Quizplus · Accepted Answer

The calculation for the equivalent units of direct materials, direct labor, and manufacturing overhead are as follows:

Direct materials:
$82,800 ÷ $82,800 = 1

Direct labor:
$220,000 ÷ $220,000 = 1

Manufacturing overhead:
80% of $220,000 = $176,000
$125,100 ÷ $176,000 = 0.71

Total equivalent units = 1 + 1 + 0.71 = 2.71

The total cost per equivalent unit is calculated as follows:

Direct materials = $82,800 ÷ 1 = $82,800
Direct labor = $220,000 ÷ 1 = $220,000
Manufacturing overhead = $125,100 ÷ 0.71 = $176,056.34

Total cost per equivalent unit = $82,800 + $220,000 + $176,056.34 = $478,856.34 ÷ 2.71 = $176,493.56

To calculate the cost of the ending work in process inventory, we need to determine how much of the 2.71 equivalent units are in the ending inventory. The total cost of the ending work in process inventory is then calculated by multiplying the number of equivalent units in the inventory by the cost per equivalent unit:

Ending work in process inventory:
Direct materials = $17,100
Direct labor = $18,000
Manufacturing overhead = $21,000 (80% of $26,250, which is the total overhead for the year after subtracting the overhead applied to completed jobs)

Total cost of ending work in process inventory = $56,100

Therefore, the December 31 work in process inventory balance is $56,100. Choice B is the correct answer.

Deco Corporation Uses a Job Costing System