Juanita Corporation uses a job-order costing system and applies overhead on the basis of direct labor cost. At the end of October, Juanita had one job still in process. The job cost sheet for this job contained the following information: Direct materials $480
Direct labor $150
Manufacturing overhead applied $600

An additional 4 hours of labor was incurred in November to complete this job. Considering the additional work in November, how much should Juanita have transferred to finished goods inventory in November when this job was completed?

a. $1,330
b. $1,730
c. $1,000
d. $1,630
e. $1,230

Juanita Corporation

Considering the additional work in November, Juanita should have transferred $1,980 to finished goods inventory in November when this job was completed

Explanation:

a) Data and Calculations:

Direct materials $480

Direct labor      $150

Manufacturing overhead applied $600

Initial labor hours = $600/$150 = 4 hours

Additional labor hours = 4 hours

Total labor hours = 8 hours

Direct labor rate = $150/4 = $37.50

New Total costs:

Direct materials $480

Direct labor         300 ($37.50 * 8)

Overhead         1,200 ($150 * 8)

Total cost =    $1,980

b) Note that there is additional direct labor cost of $150 for 4 hours and additional manufacturing overhead of $600 for the additional 4 direct labor hours.  When these are factored in, the total cost that should be transferred to finished goods inventory in November rises to $1,980.

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