Limbaugh Co. uses a job order cost system in the production of unique test equipment for
oil drilling. Limbaugh planned for the following for the fiscal year:
Direct Labor $4,000,000.00
Overhead $8,000,000.00 applied on basis of direct labor cost
Direct Material $10,000,000.00
Limbaugh had one job in WIP at the beginning of the year
Job A 715
Direct Labor $300,000.00
Direct Material $480,000.00
Limbaugh had one job in finished goods at the beginning of the year:
Job A 634
Total Cost $600,000.00
During the year Limbaugh’s actual costs were:
Direct Labor $4,100,000.00
Overhead $7,950,000.00
Direct Material $10,200,000.00
There was one job remaining in finished goods as of year end
Job A 796
Direct Labor $200,000.00
Direct Material $300,000.00
There were two jobs remaining in ending WIP
Job A 801
Direct Labor $50,000.00
Direct Material $72,000.00
Job A 806
Direct Labor $120,000.00
Direct Material $150,000.00
Required:
Calculate the applied overhead rate and use in determining
value of WIP, Finished Goods and Cost of Goods Sold
Indicate whether overhead was under or over applied and
dispose of amount in appropriate manner.
If sales for the year were $30,000,000 and operating expense was
$5,200,000, prepare an income statement for the year and indicate
the value of ending inventory on the balance sheet.