Batchelor Company manufactures custom accounting ledgers using a job-order costi

Question

Batchelor Company manufactures custom accounting ledgers using a job-order costing system. Manufacturing Overhead is applied to each job as a predetermined rate of 150% of Direct Labor cost. Any under applied overhead is prorated between work in process, Finished Goods, and Cost of Goods Sold based on the amount of manufacturing overhead in their ending balances at the end of each month.

Additional formation:

1. Job 100 was completed but unsold as of 1/31/2016 with actual incurred costs as follows: Direct materials = $3,900 and Direct Labor =$ 2,400

2. Job 101 was the only job in process on 1/31/2016 with actual incurred costs as follows: Direct Materials = $3,300 and Direct Labor = $2,700

3. Job 102, 103, 104, and 105 were started on February 2016

4. Direct Material used in production during February totaled $16,000

5. The total Cost of Goods Manufactured for February was $68,750

6. Actual manufacturing Overhead was $36,000 for February

7. The only job still in process on 2/28/2016 was job 105 which has actual incurred costs of $2,800 for Direct Materials and $1,800 for Direct Labor

8. The only completed job left unsold on 2/28/2016 was job 104 which has actual incurred costs of $3,500 for direct materials and $4,500 for direct labor

A. Calculate the conversation cost of February 2016

Explanation / Answer

Conversion cost = Direct Labour + Manufacturing Overheads

Cost of goods sold = Opening cost + Cost of goods manufactured - Closing cost

= (3900 + 2400 + 3300 + 2700) + 68750 - (2800 + 1800 + 3500 + 4500)

= $68450

Conversion cost = Cost of goods sold - Direct Material used

= 68450 - 16000

= $52450

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