Questions -
Question 1 - The Staley Co. uses a job-order cost system. To keep this simple, assume that Staley started two projects in 2014. For Job #101, $4,200 of direct materials were requisitioned and 360 direct labor hours were consumed during 2014. For Job #202, $3,600 of direct materials were requisitioned and 255 direct labor hours were consumed during 2014. All of the production line workers are paid $28 per hour.
At the beginning of 2014, Staley had no inventory of any kind. The company applies overhead to jobs based on direct labor hours consumed. At the beginning of the period, Staley expected to use 600 direct labor hours and spend $12,300 on overhead. Job #101 was completed and sold to a customer for $50,000 during 2014. Job #202 was still in progress at the end of 2014.
What is the rate Staley uses to apply overhead costs to jobs in 2014?
a. $10.20 per hour
b. $19.68 per hour
c. $20.00 per hour
d. $20.50 per hour
Question 2 - What is gross margin (sales minus cost of goods sold) in 2014 prior to considering over/under applied overhead?
a. $12,372.50
b. $12,876.80
c. $28,340.00
d. $28,520.00
e. $28,635.20
Question 3 - Assume that actual overhead costs for 2014 totaled $12,700. Was overhead in 2014 over- or under-applied? By how much?
a. $400 over-applied
b. $400 under-applied
c. $596.80 under-applied
d. $92.50 under-applied
Question 4 - Let's change an assumption. Instead of using 255 direct labor hours on job #202, let's assume Staley used 265 direct labor hours on job #202 during 2014. This extra labor expended near the end of the year was sufficient to complete job #202, but the product was not sold until 2015. No additional materials beyond the $3,600 in the original problem were needed to complete job #202. The additional work caused actual overhead costs to increase from $12,700 to $12,830.
All other information is the same as in the original problem. Given these new facts, was overhead in 2014 over- or under- applied? By how much?
a. $330 under-applied
b. $400 under-applied
c. $17.50 under-applied
d. $530 under-applied
Question 5 - Assume Staley follows our custom of closing over- or under-applied overhead to COGS at the end of each period. Compute the 2014 gross margin after closing first assuming Staley used 265 hours on job #202 and then again using the original assumption that Staley used 255 hours on #202 in 2014.
How does the first adjusted gross margin compare to the second adjusted gross margin?
a. Adjusted gross margin when 265 hours are used would be higher than the adjusted gross margin when 255 hours are used.
b. Adjusted gross margin when 265 hours are used would be lower than the adjusted gross margin when 255 hours are used.
c. Adjusted gross margin when 265 hours are used would be the same as the adjusted gross margin when 255 hours are used.