Question

ABC Company applies overhead to products using a pre-determined
overhead rate of 65% of direct labor cost. During 2020, ABC
Company began work on three jobs. Information relating to these
three jobs appears below:

                            Job X        Job Y        Job Z
direct materials .......    $18,000      $27,000      $32,000
direct labor ...........    $58,000      $62,000      $47,000

By the end of 2020, Job Y and Job Z had been completed. Job X was
not completed by the end of 2020. Additionally, by the end of 2020,
one-half of Job Y had been sold while none of Job Z had been sold.

Assume there were no inventories of any type at January 1, 2020. 

Calculate ABC Company's finished goods inventory balance reported
on the December 31, 2020 balance sheet.

Answer 1

Total Cost of Job-Y

Total Cost of Job-Y = Direct material + Direct labor + Overhead applied

= $27,000 + $62,000 + [$62,000 x 65%]

= $27,000 + $62,000 + $40,300

= $129,300

Total Cost of Job-Z

Total Cost of Job-Z = Direct material + Direct labor + Overhead applied

= $32,000 + $47,000 + [$47,000 x 65%]

= $32,000 + $47,000 + $30,550

= $109,550

The finished goods inventory balance reported on the December 31, 2020

Therefore, the finished goods inventory balance = [Total Cost of Job-Y x ½] + Total Cost of Job-Z

= [$129,300 x ½] + $109,550

= $64,650 + $109,550

= $174,200

“Hence, the finished goods inventory balance reported on the December 31, 2020 balance sheet will be $174,200”