Mastery Problem: Job Order Costing

Purl of Great Price Company

Maria Young is the sole stockholder of Purl of Great Price Company (POGP Company), which produces high-end knitted sweaters and sweater vests for sale to retail outlets. The company started in January of the current year, and employs three knitters (each of whom work 40 hours per week) and one office manager/knitting supervisor (this employee works 20 hours per week as office manager, and 20 hours per week as knitting supervisor). All wages are paid in cash at the end of each month.

Each knitter has a knitting machine that is used about 2/3 of the knitters time, the rest of the knitters time being involved in hand knitting and piecing together the garments. The company also has a packaging machine used to wrap the garments in plastic for shipping, which is operated by the office manager/knitting supervisor approximately 5 hours per week.

The knitting machines were purchased on January 1 of the current year, and cost $2,400 each, with an anticipated useful life of 10 years and no salvage value. The packaging machine was purchased on the same date and cost $4,800, with the same anticipated useful life and salvage value.

Question Content Area

Nov. 30 Trial Balance

POGP Company Trial Balance November 30, 20Y8
Account Title	Debit	Credit
Cash	20,000
Accounts Receivable	1,000
Supplies	200
Materials	5,000
Work in Process	5,404
Equipment	12,000
Accumulated Depreciation-Equipment		825
Accounts Payable		150
Common Stock		10,000
Retained Earnings		12,000
Dividends	18,096
Sales		307,500
Cost of Goods Sold	255,040
Factory Overhead		15
Wages Expense	13,750
	330,490	330,490

Predetermined Factory Overhead Rate

Since the company is more reliant on labor than machines, Maria decides to use direct labor hours (DLH) as the activity base for her predetermined factory overhead rate, rather than machine hours (MH).

Estimated Selected Amounts for the Year
Estimated depreciation on equipment	$1,200
Estimated total Office Manager/Knitting Supervisor wages	$30,000
Estimated office utilities	$6,000
Estimated factory utilities	$4,800
Estimated factory rent	$18,000

Activity Base Data
Estimated number of DLH for the year	5,000
Estimated number of MH for the year	3,500

Compute the predetermined factory overhead rate for the current year.

$7.80 per DLH$11.14 per DLH$10.80 per DLH$12.00 per DLHAnother amount per DLH