Pineapple Corporation manufactures custom-made bags. The following data pertains to Job PA8: Direct materials placed into production $5,500 Direct labor hours worked hours 80 Direct labor rate per hour $40 Machine depreciation, supervisor salary $4,900 Machine hours worked 200 hours Factory overhead is applied using a plant-wide rate based on direct labor hours. Factory overhead was budgeted at $125,000 for the year, and the direct labor hours were estimated to be 2,000. Assuming that Job PA8 has been sold to the customers for $22.000 (including sales tax 10%), how much is the gross profit from Jab PA8 after the company adjust the overapplied/underannliedioverhear?

Solution

Predetermined overhead rate = Estimated overhead / Estimated direct labor hours

= $125,000 / 2000 = $62.50 per direct labor hour

Total cost of Job PA 8 = Direct materials + Direct labor + Overhead applied

= $5,500 + (80*$40) + (80*$62.50)

= $5,500  +$3,200 + $5,000

= $13,700

Overapplied overhead = Overhead applied - Actual overhead = $5,000 - $4,900 = $100

Cost of job sold = $13,700 + $100 = $13,800