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Cost driver and cost of job

This is a study question that needs to been done and submitted as an excel file. Detailed solution to the problem.

5. 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.


A. Should Montgomery use direct labor or machine hours as a cost driver. Why?

B. 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?
C. Compute the cost of work-in-process inventory as of January 31.
D. Compute the cost of jobs completed during January.

Solution Summary

The solution explains the selection of a cost driver and the calculation of the cost of job.