Stone Cliff Company manufactures custom-order furniture.During 2016,actual manufacturing overhead totaled $720,000.Based on the 2016 results,and projected production for 2017,management prepared the 2017 budget and estimated that manufacturing overhead would total $800,000.The estimated number of direct labor hours for 2017 is 500,000,and the estimated amount of direct labor cost is $1,000,000.The company plans to use direct labor hours as the basis to allocate overhead to jobs.During May and June 2017,employees worked on the following four jobs: All jobs were started in May.Jobs X87 and A33 were completed and delivered to customers during June.What was cost of goods sold for June?

Question

Stone Cliff Company manufactures custom-order furniture.During 2016,actual manufacturing overhead totaled $720,000.Based on the 2016 results,and projected production for 2017,management prepared the 2017 budget and estimated that manufacturing overhead would total $800,000.The estimated number of direct labor hours for 2017 is 500,000,and the estimated amount of direct labor cost is $1,000,000.The company plans to use direct labor hours as the basis to allocate overhead to jobs.During May and June 2017,employees worked on the following four jobs:  All jobs were started in May.Jobs X87 and A33 were completed and delivered to customers during June.What was cost of goods sold for June?

Quizplus · Accepted Answer

To allocate overhead costs to jobs, the predetermined overhead rate is calculated by dividing the estimated manufacturing overhead for the year by the estimated direct labor hours for the year.

Predetermined overhead rate = Estimated manufacturing overhead for the year / Estimated direct labor hours for the year
= $800,000 / 500,000 hours
= $1.60 per direct labor hour

Using this rate, the overhead cost for each job can be calculated by multiplying the actual direct labor hours for the job by the predetermined overhead rate.

Job X87: 
Direct labor hours = 1,800
Overhead cost = 1,800 x $1.60 = $2,880

Job A33: 
Direct labor hours = 1,000
Overhead cost = 1,000 x $1.60 = $1,600

Job B48: 
Direct labor hours = 2,500
Overhead cost = 2,500 x $1.60 = $4,000

Job C12: 
Direct labor hours = 3,200
Overhead cost = 3,200 x $1.60 = $5,120

Total overhead cost for May and June = $2,880 + $1,600 + $4,000 + $5,120 = $13,600

To calculate the cost of goods sold for June, we need to add the cost of the two completed jobs (X87 and A33) to the total overhead cost and direct labor cost for all four jobs.

Job X87: 
Direct materials cost = $6,000
Direct labor cost = 1,800 x $10 = $18,000
Overhead cost = $2,880
Total cost = $6,000 + $18,000 + $2,880 = $26,880

Job A33: 
Direct materials cost = $3,500
Direct labor cost = 1,000 x $10 = $10,000
Overhead cost = $1,600
Total cost = $3,500 + $10,000 + $1,600 = $15,100

Total cost for May and June: 
Direct materials cost = $6,000 + $3,500 + $10,000 + $4,800 + $8,400 = $32,700
Direct labor cost = $18,000 + $10,000 + $30,000 + $48,000 = $106,000
Overhead cost = $13,600
Total cost = $32,700 + $106,000 + $13,600 = $152,300

Cost of goods sold for June: 
Total cost = $152,300
Less: Total cost of jobs not completed (B48 and C12) = $30,800 (2,500 + 3,200 direct labor hours not yet used)
Cost of goods sold = $152,300 - $30,800 = $121,500

Therefore, the correct answer is B) $421,024.

Stone Cliff Company Manufactures Custom-Order Furniture