4. Job Costing
Hanif Kanjer
Dean, Rustomjee Business School
Index
•
•
•
•
Overheads are to be allocated
Cost-allocation base
Actual Costing
Normal Costing (computed using Budgeted
overhead rate)
• Under-allocation, Over-allocation
Actual Costing, Normal Costing, accounting for manufacturing overhead
E.g. 4-17, Pg 151
Cost Allocation
base :
aDirect Material Costs
bDirect Manufacturing labor costs
cManufacturing Overhead Costs
Direct
Manufacturing
Labor Costs
dManufacturing Overhead rate (=c/b)
Manufacturing
Overhead costs
=
Mfg OH rate*
direct mfg labor
costs
2. During March, the job cost record
for Job 195: Compute total costs.
e Direct Materials used
f Direct Manufacturing labor Costs
Manufacturing Overhead Costs
Total Costs
UNDER ALLOCATION
There is under
Amount in $
Budget for
Actual Results
2009
for 2009
2,150,000
2,000,000
1,450,000
1,400,000
2,755,000
2,800,000
1.9
NORMAL
COSTING
50,000
40,000
76,000
166,000
2.0
ACTUAL
COSTING
50,000
40,000
80,000
170,000
4,000
allocation as budgeted overhead is
$166,000 and actual overhead is $1,70,000, so under allocated by
$4,000
Job Costing, Normal Costing, actual Costing
E.g. 4-18, Pg 151
Cost Allocation Base
1 Computation of Overhead Rate
Actual Costing
a. Assembly Support Costs
b. Direct Labor hours
c1. Assembly Support Costs Overhead Rate
c2
2
Construction Period
d1. Direct Labor Hours
d2
Direct Labor hours
Normal Costing
6,888,000
8,000,000
164,000
42
160,000
50
Actual Costing
Normal Costing
Laguna Model Mission Model
Feb-June 2008 May-Oct 2008
900
Laguna Model Mission Model
Feb-June 2008 May-Oct 2008
900
1010
1010
e. Direct Material Costs
106,450
127,640
106,450
127,640
f. Direct Labor Costs
g. Assembly Support Costs
36,276
37,800
(c1*d1)
180,526
41,410
42,420
(c1*d2
211,470
36,276
45000
(c2*d1)
187,726
41,410
50500
(c2*d2)
219,550
Total Costs
Job Costing, Normal Costing, actual Costing
E.g. 4-18, Pg 151
3
Manufacturing costs of a job are available much earlier under a normalcosting system.
So, managers can evaluate the profitability of different jobs, the efficiency
with which the jobs are done, and the pricing of the jobs are soon as the
jobs are completed, while the experience is still fresh in everyone’s mind.
Another advantage of normal costing is that corrective actions can be
implemented much sooner.
At the end of the year, though, the costs allocated using normal costing will
not, in general, equal the actual costs incurred.
E.g. 4-31, Pg 157
Job Costing, accounting for Mfg Overhead, budgeted rates
2 BUDGETED MANUFACTURING OVERHEAD
A Manufacturing Overhead
B Direct Manufacturing Labor Costs
Machining
Department
Finishing
Department
12,000,000
10,000,000
1,000,000
5,000,000
40,000
200,000
250,000
55,000
C Direct Manufacturing Labor-Hours
D Machine Hours
E
BUDGETED MANUFACTURING OVERHEAD
3
Month of January, job cost record, Job 289
F
G
H
I
Direct Materials used
Direct Manufacturing Labor Costs
Direct Manufacturing Labor-Hours
Machine Hours
J
48
2
Machining Dept.
Finishing Dept.
15,000
650
35
140
4,000
1,400
60
15
TOTAL MANUFACTURING OVERHEAD COSTS
6,720
(E*I)
2,800 9,520
(E*G)
E.g. 4-31, Pg 157
Job Costing, accounting for Mfg Overhead, budgeted rates
Q4, Cost/unit, if Job 289
consisted of 100 units of
product
Machining
Department
Direct Materials used
15,000
4,000
Direct Manufacturing Labor Costs
650
1,400
Manufacturing Overheads
Total costs
6,720
22,370
2,800
8,200
Cost/unit
223.70
82.00
Finishing
Department
305.70
E.g. 4-31, Pg 157
e
Job Costing, accounting for Mfg Overhead, budgeted rates
BUDGETED MANUFACTURING OVERHEAD
Q5. Compute
over/underallocated MFG OH
f
Actual Manufacturing Overheads
g
Actual Machine Hours
h
Actual Direct Manufacturing Labor Costs
i
Actual Manufacturing Overhead rate
Thus, (e-i)
Budgeted less than allocated
48
2
Machining Department
Finishing Department
13,400,000
9,800,000
270,000
54,000
1,100,000
4,300,000
49.63
2.28
-1.63
-0.28
Under allocation
Under allocation