Question

Sigma Corporation applies overhead cost to jobs on the basis of direct labor cost. Job V,...

Sigma Corporation applies overhead cost to jobs on the basis of direct labor cost. Job V, which was started and completed during the current period, shows charges of $5,000 for direct materials, $9,700 for direct labor, and $6,596 for overhead on its job cost sheet. Job W, which is still in process at year-end, shows charges of $4,400 for direct materials and $4,400 for direct labor.

Required: 1a. Should any overhead cost be applied to Job W at year-end?

Yes or No?

1b. How much overhead cost should be applied to Job W?

Business   Accounting   
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Answer #1

1.a.

Overhead is charged on the basis of direct labor cost.

Direct labor cost of Job V = $9,700

Overhead applied to JOb V = $6,596

Overhead rate = Overhead applied to JOb V/Direct labor cost of Job V

= 6,596/9,700

= 68% of direct labor cost

During the current period , Job W was started but it was not completed . Overhead cost should be applied to Job W also.

1.b.

Direct labor cost of Job W = $4,400

Overhead applied to Job W = Direct labor cost of Job W x Overhead rate

= 4,400 x 68%

= $2,992

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