Reference no: EM13876629
Chelsea Household Renovations (CHR) is a rapidly growing company that has not been profitable despite increases in sales. It has hired you as a consultant to find ways to improve profitability. You believe that the problem results from poor cost control and inaccurate cost estimation on jobs. The company has essentially no accounting system from which to collect data. You are able, however, to piece together the following information for June: · Production
(1) Completed Job 61.
(2) Started and completed Job 62.
(3) Started Job 63. Inventory values
1. Work in process inventory (excluding applied overhead): May 31: Job 61
Direct materials . . . . . . . . . . . . . . . . . $ 8,000
Labor (960 hours $40) . . . . . . . . . . . 38,400
June 30: Job 63
Direct materials . . . . . . . . . . . . . . . . . $ 6,400
Labor (1,040 hours $40) . . . . . . . . . . 41,600
Each job in work in process inventory was exactly 50 percent completed as to labor hours; however, all direct materials necessary to do the entire job were charged to each job as soon as it was started.
There were no direct materials inventories or finished goods inventories at either May 31 or June 30. Actual overhead was $80,000.
Cost of goods sold (before adjustment for over or underapplied overhead):
Job 61 Materials . . . . . . . . . . . . . . . . . . . . . . $8,000
Labor . . . . . . . . . . . . . . . . . . . . . . . . ?
Overhead . . . . . . . . . . . . . . . . . . . . . ?
Total . . . . . . . . . . . . . . . . . . . . . . . . . $123,200
Job 62 Materials . . . . . . . . . . . . . . . . . . . . . . ?
Labor . . . . . . . . . . . . . . . . . . . . . . . . ?
Overhead . . . . . . . . . . . . . . . . . . . . . ?
Total . . . . . . . . . . . . . . . . . . . . . . . . . ?
Overhead was applied to jobs using a predetermined rate per labor dollar that has been used since the company began operations. All direct materials were purchased for cash and charged directly to Work in Process Inventory when purchased.
Direct materials purchased in June amounted to $18,400. Direct labor costs charged to jobs in June were $128,000. All labor costs were the same per hour for all laborers for June.
Required:
Write a report to management to show:
a. The cost elements (material, labor, and overhead) of cost of goods sold before adjustment for over or underapplied overhead for each job sold.
b. The value of each cost element (material, labor, and overhead) for each job in work in process inventory at June 30.
c. Over or underapplied overhead for June.
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