Question

Parker Company has a job-order costing system and uses a pre-determined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. At the beginning of the year, manufacturing overhead and direct labor hours for the year were estimated at $50,000 and 25,000 hours respectively. In June, Job #461 was started, completed, and sold to a customer. Materials cost on the job totaled $4,000, and labor costs were $5 per hour and totaled $1,500. Sales commissions incurred on this sale totaled $250. The cost of goods sold related to Job #461 is:

a. $6,250 b. $6,500 c. $6,174 d. $6,310 e. $5,500

Answer 1

Parker Company

Determination of cost of goods sold related to job no. 461:

Material cost$4,000

Direct labor cost$1,500

Manufacturing overhead$600

Total cost of goods sold related to job no. 461 = $6,100

Estimated manufacturing overhead$50,000

Estimated direct labor hours25,000

Predetermined overhead rate per direct labor hour = $50,000/25,000 = $2 per hour

Manufacturing overhead applied to job 461 is as follows,

300 hours x $2 = $600

number of hours worked =$1,500/$5 = 300 hours

Hence, the cost of goods sold for job n0.461 is $6,100.

None of the options given is correct.

Sales commissions do not form part of cost of goods sold. Sales commission is deducted from gross sales to arrive at net sales.