Question

ABC Company applies overhead to products using a pre-determined
overhead rate of 80% of direct labor cost. During 2022, ABC
Company began work on three jobs. Information relating to these
three jobs appears below:

                            Job A        Job B        Job C
direct materials .......    $55,000      $75,000      $87,000
direct labor ...........    $42,000      $39,000      $64,000

By the end of 2022, Job A and Job C had been completed. Job B was
not completed by the end of 2022. Additionally, by the end of 2022,
Job C had been sold while Job A was not sold. ABC Company had total
actual overhead cost of $150,000 during 2022.

Assume there were no inventories of any type at January 1, 2022. 

Calculate ABC Company's cost of goods sold for 2022 after the
overhead variance is closed.

Answer 1

Total direct labor cost for the Job

Total direct labor cost for the Job = $42,000 + $39,000 + $64,000

= $145,000

The Overhead applied during the year = Total direct labor cost x Predetermined overhead rate

= $145,000 x 80%

= $116,000

Actual overhead costs incurred = $150,000

Overhead Underapplied

Therefore, the Overhead Underapplied = $150,000 - $116,000

= $34,000

The total cost of Job-C

The total cost of Job-C= Direct material + Direct labor + Overhead applied

= $87,000 + $64,000 + [$64,000 x 80%]

= $87,000 + $64,000 + $51,200

= $202,200

The Company's cost of goods sold for 2022 after the overhead variance

Therefore, the The Company's cost of goods sold for 2022 after the overhead variance = Total cost of Job-C + overhead Underapplied

= $202,200 + $34,000

= $236,200