QUESTION ONE

Destin products uses a job costing system with two direct cost categories (direct material and direct manufacturing labor) and one manufacturing overhead cost pool.
Destin allocates manufacturing overhead costs using direct manufacturing labor costs.
Destin provides the following information:

Budgeted for 2017 Actual for 2017
Direct material cost 1,500,000 1,450,000
Direct manufacturing labour cost 1,000,000 980,000
Manufacturing overhead costs 1,750,000 1,862,000

REQUIRED:

  1. Compute the actual and budgeted manufacturing overhead rates for 2017
  2. During March, the job cost record for job 626 contained the following information:
    • Direct materials used          shs. 40,000
    • Direct manufacturing labor costs   shs. 30,000

    Compute the cost of job 626 using (a) actual costing and (b) normal costing

  3. At the end of 2017, compute the under or over allocated manufacturing overhead under normal costing. Why is there no under or over allocated overhead under actual costing?


  • Updated: 01 July 24
  • |
  • Attempts: 8900
  • |
  • Correct: 6059

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Actual Manufacturing Overhead rate:
QUESTION TWO

DC Limited is an engineering company which uses job costing to attribute costs to individual products and services provided to its customers. It has commenced the preparation of its fixed production overhead cost budget for 2021 and has identified the following costs:

(shs.000)
Machining 600
Assembly 270
Finishing 150
Stores 100
Maintenance 80
1,180

The stores and maintenance departments are production service departments. An analysis of the services they provide indicates that their costs should be apportioned accordingly:

Machining Assembly Finishing Stores Maintenance
stores 40% 30% 20% ---- 10%
maintainance 55% 20% 20% 5% ----

The number of machine and labor hours budgeted for 2021 is:


Machining Assembly Finishing
Machine hours 50,000 4,000 5,000
labor hours 10,000 30,000 20,000

Requirements:

  1. Calculate appropriate overhead absorption rates for each production department for 2021. Use Repeated distribution approach. [Limit your distribution to 3 levels/rows]
  2. Prepare a quotation for job number XX34, which is to be commenced early in 2021, assuming that it has:

  3. Direct materials costing   shs. 2,400

    Direct labour costing     shs. 1,500

    and requires:
    Machine hours Labour hours
    Machine department 45 10
    Assembly department 5 15
    Finishing department 4 12

    and that profit is 20% of selling price.

  4. Assume that in 2021 the actual fixed overhead cost of the assembly department totals shs.300, 000 and that the actual machine hours were 4,200 and actual labor hours were 30,700. Prepare the fixed production overhead control account for the assembly department, showing clearly the causes of any over-/under-absorption.

  • Updated: 01 July 24
  • |
  • Attempts: 6594
  • |
  • Correct: 3896

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Overhead Absorption Rate of Machining:
QUESTION THREE

The Chinyoya Company uses a job costing system at its Minneapolis plant. The plant has a Machining department and Assembly department. Its job costing system has two direct cost categories (direct materials and direct manufacturing labor) and two manufacturing overhead cost pools (the Machining department overhead, allocated to jobs based on actual machine hours and the Assembly department overhead allocated to jobs based on actual direct manufacturing labor costs). The 2017 budget for the plant is:


Machining department Assembly department
Manufacturing overhead Shs. 1,800,000 Shs. 3,600,000
Direct manufacturing labor cost Shs. 1,400,000 Shs. 2,000,000
Direct manufacturing labour hours 100,000 200,000
Machine hours 50,000 200,000

Required:

  1. Compute the budgeted manufacturing overhead rate for each department
  2. During February, the job cost record for job 494 contained the following:

  3. Machining Department Assembly Department
    Direct materials used shs 45,000 shs 70,000
    Direct manufacturing labour cost 14,000 15,000
    Direct Manufacturing labour hours 1,000 1,500
    Machine hours 2,000 1,000

    Compute the total manufacturing overhead costs allocated to job 494


  4. At the end of 2017, the actual manufacturing overhead costs were shs. 2,100,000 in Machining and shs. 3,700,000 in Assembly. Assume that 55,000 actual machine hours were used in Machining and that actual direct manufacturing labor costs in Assembly were shs. 2,200,000. Compute the over or under allocated manufacturing overhead for each department.

  • Updated: 01 July 24
  • |
  • Attempts: 5528
  • |
  • Correct: 3819

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Overhead Absorption Rate of Machining:
QUESTION FOUR

A manufacturing company has two production cost centers (Departments A and B) and one service cost centre (Department C) in its factory. A predetermined overhead absorption rate is established for each of the production cost centers on the basis of budgeted overheads and budgeted machine hours.
The overheads of each production cost centre comprise directly allocated costs and a share of the costs of the service cost centre. Budgeted production data for a period is as follows:


Department A Department B Department C
Allocated costs shs. 250 000 shs. 350 000 shs. 150 000
Apportioned costs shs. 70 000 shs. 80 000 (shs. 150 000)
Machine hours 12 500 16 000
Direct labor hours 16 000 27 000
Actual production overhead costs and activity for the same period are:
Department A Department B Department C
Allocated costs shs. 210 000 shs. 380 000 shs. 148 000
Machine hours 13 000 15 000
Direct labor hours 16 000 24 000

70% of the actual costs of Department C are to be apportioned to production cost centers on the basis of actual machine hours worked and the remainder on the basis of actual direct labor hours.

Required:

  1. Establish the production overhead absorption rates for the period.
  2. Determine the under- or over-absorption of production overhead for the period in each production cost centre.

  • Updated: 01 July 24
  • |
  • Attempts: 3781
  • |
  • Correct: 2081

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Overhead Absorption Rate of Department A:
QUESTION FIVE

Company X is preparing a job cost estimate that will be used to provide a quote for a potential customer. Estimated costs for the job are to be based on the following:
Direct materials shs 2,893
Direct labour 210 hours at a basic rate of shs 8.00 per hour
Direct production staff also receives a bonus each period. The bonus is paid on actual hours worked at a rate per hour calculated using the following formula:

{[(time allowed – time worked) ÷ time allowed] × basic rate per hour}

The bonus to be included currently in the costing of all jobs is based on the following estimates for the period:
Total time worked 3,400 labour hours
Total time allowed 4,000 labour hours
Production overheads Absorbed at 20% of prime cost (including labour bonus) + shs 9.00 per direct labour hour
Non-production overheads Absorbed at 25% of total production cost
Quoted prices are calculated to provide Company X with a net profit margin of 20% of sales.

Required:

  1. Calculate the total estimated PRODUCTION cost of the job.
  2. Calculate the price that should be quoted for the job.

  • Updated: 01 July 24
  • |
  • Attempts: 3460
  • |
  • Correct: 2011

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Direct Labour Bonus:
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