# Question: Naranjo Company designs industrial prototypes for outside companies Budgeted overhead

Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was \$260,000, and budgeted direct labor hours were 20,000. The average wage rate for direct labor is expected to be \$25 per hour. During June, Naranjo Company worked on four jobs. Data relating to these four jobs follow:
Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 130 percent of cost. (Naranjo had originally developed Job 40 to order for a customer; however, that customer was near bankruptcy and the chance of Naranjo being paid was growing dimmer. Naranjo decided to hold Job 40 in inventory while the customer worked out its financial difficulties. Job 40 is the only job in Finished Goods Inventory.) Jobs 41 and 42 remain unfinished at the end of the month.
Required:
1. Calculate the overhead rate based on direct labor cost.
2. Set up a simple job-order cost sheet for all jobs in process during June.
3. What if the expected direct labor rate at the beginning of the year was \$20 instead of \$25?
What would the overhead rate be? How would the cost of the jobs be affected?

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