Question: Montgomery, Inc., which uses a job-costing system, is a labor-intensive firm, with many skilled craftspeople on the payroll. Job no. 789 was the only job in process on January 1, having costs of $22,500 as of that date. Direct materials used and direct labor incurred during January were:
Job No. Direct Materials Direct Labor
Job no. 789 $ 2,000 $ 6,000
Job no. 790 9,000 10,000
Job no. 791 14,000 8,000
Job no. 791 was the only job in production as of January 31.
Required:
Question 1: Should Montgomery use direct labor or machine hours as a cost driver. Why?
Question 2: Assume that the company decided to use direct labor as its cost driver. If the budgeted amount of direct labor and manufacturing overhead are anticipated to be $200,000 and $300,000, respectively, what is the firm's predetermined overhead rate?
Question 3: Compute the cost of work-in-process inventory as of January 31.
Question 4: Compute the cost of jobs completed during January.