CHAPTER 4
JOB COSTING
4-17
1.
(20 min.) Actual costing, normal costing, accounting for manufacturing overhead.
Budgeted manufacturing
overhead rate
Actual manufacturing
overhead rate
=
Budgeted manufacturing
overhead costs
Budgeted direct manufacturing
labor costs
=
$2, 700, 000
= 1.80 or 185%
$1, 500, 000
=
Actual manufacturing
overhead costs
Actual direct manufacturing
labor costs
$2, 755, 000
= 1.9 or 190%
$1, 450, 000
Costs of Job 626 under actual and normal costing follow:
=
2.
Direct materials
Direct manufacturing labor costs
Manufacturing overhead costs
$30,000 × 1.90; $30,000 × 1.80
Total manufacturing costs of Job 626
4-1
Actual
Costing
Normal
Costing
$ 40,000
30,000
$ 40,000
30,000
57,000
$127,000
54,000
$124,000
3.
Total manufacturing overhead =
allocated under normal costing
Actual manufacturing × Budgeted
labor costs
overhead rate
= $1,450,000 × 1.80
= $2,610,000
Underallocated manufacturing =
overhead
Actual manufacturing – Manufacturing
overhead costs
overhead allocated
= $2,755,000 − $2,610,000 = $145,000
There is no under- or overallocated overhead under actual costing because overhead is
allocated under actual costing by multiplying actual manufacturing labor costs and the actual
manufacturing overhead rate. This, of course equals the actual manufacturing overhead costs. All
actual overhead costs are allocated to products. Hence, there is no under- or overallocatead
overhead.
4-2
4-18
1.
(20 -30 min.) Job costing, normal and actual costing.
Budgeted indirectcost rate
=
Budgeted indirect costs
$8,000,000
=
Budgeted direct labor-hours 160,000 hours
= $50 per direct labor-hour
Actual indirectcost rate
=
$6,888,000
Actual indirect costs
=
Actual direct labor-hours
164,000 hours
= $42 per direct labor-hour
These rates differ because both the numerator and the denominator in the two calculations are
different—one based on budgeted numbers and the other based on actual numbers.
2a.
Normal costing
Direct costs
Direct materials
Direct labor
2b.
Indirect costs
Assembly support ($50 × 900; $50 × 1,010)
Total costs
Actual costing
Direct costs
Direct materials
Direct labor
Indirect costs
Assembly support ($42 × 900; $42 × 1,010)
Total costs
Laguna
Model
Mission
Model
$106,450
36,276
142,726
$127,604
41,410
169,014
45,000
$187,726
50,500
$219,514
$106,450
36,276
142,726
$127,604
41,410
169,014
37,800
$180,526
42,420
$211,434
3.
Normal costing enables Anderson to report a job cost as soon as the job is completed,
assuming that both the direct materials and direct labor costs are known at the time of use. Once
the 900 direct labor-hours are known for the Laguna Model (June 2007), Anderson can compute
the $187,726 cost figure using normal costing. Anderson can use this information to manage the
costs of the Laguna Model job as well as to bid on similar jobs later in the year. In contrast,
Anderson has to wait until the December 2007 year-end to compute the $180,526 cost of the
Laguna Model using actual costing.
Although not required, the following overview diagram summarizes Anderson
Construction’s job-costing system.
4-3
INDIRECT
COST
POOL
}
Assembly
Support
COST
ALLOCATION
BASE
}
Direct
Labor-Hours
COST OBJECT:
RESIDENTIAL
HOME
}
Indirect Costs
DIRECT
COSTS
}
Direct Costs
Direct
Materials
4-4
Direct
Manufacturing
Labor
4-19
(10 min.) Budgeted manufacturing overhead rate, allocated manufacturing overhead.
1.
Budgeted manufacturing overhead rate =
=
2.
Budgeted manufacturing overhead
Budgeted machine hours
$4, 000, 000
= $20 per machine-hour
200, 000 machine-hours
Manufacturing overhead allocated = Actual machine-hours × Budgeted manufacturing overhead rate
= 195,000 × $20 = $3,900,000
3.
Since manufacturing overhead allocated is greater than the actual manufacturing overhead
costs, Waheed overallocated manufacturing overhead:
Manufacturing overhead allocated
Actual manufacturing overhead costs
Overallocated manufacturing overhead
4-5
$3,900,000
3,860,000
$ 40,000
4-20
(20-30 min.) Job costing, accounting for manufacturing overhead, budgeted rates.
1.
An overview of the product costing system is
}
INDIRECT
COST
POOL
COST
ALLOCATION
BASE
}
Machining Department
Manufacturing Overhead
Assembly Department
Manufacturing Overhead
Machine-Hours
}
Indirect Costs
COST OBJECT:
PRODUCT
}
DIRECT
COST
Direct Manuf.
Labor Cost
Direct Costs
Direct
Materials
Direct
Manufacturing
Labor
Budgeted manufacturing overhead divided by allocation base:
Machining overhead
Assembly overhead:
2.
$1,800,000
= $36 per machine-hour
50,000
$3,600,000
= 180% of direct manuf. labor costs
$2,000,000
Machining department, 2,000 hours × $36
Assembly department, 180% × $15,000
Total manufacturing overhead allocated to Job 494
3.
Actual manufacturing overhead
Manufacturing overhead allocated,
55,000 × $36
180% × $2,200,000
Underallocated (Overallocated)
4-6
$72,000
27,000
$99,000
Machining
$2,100,000
Assembly
$ 3,700,000
1,980,000
—
$ 120,000
—
3,960,000
$ (260,000)
4-23
1.
(10–15 min.) Accounting for manufacturing overhead.
Budgeted manufacturing overhead rate =
$7,500, 000
250,000
= $30 per machine-hour
2.
Work-in-Process Control
7,350,000
Manufacturing Overhead Allocated
7,350,000
(245,000 machine-hours × $30 per machine-hour = $7,350,000)
3.
$7,350,000– $7,300,000 = $50,000 overallocated, an insignificant amount of actual
manufacturing overhead costs $50,000 ÷ $7,300,000 = 0.66%.
Manufacturing Overhead Allocated
7,350,000
Manufacturing Department Overhead Control
Cost of Goods Sold
4-7
7,300,000
50,000
4-27
(15 min.)
Job costing, unit cost, ending work in progress.
1.
Direct manufacturing labor rate per hour
Manufacturing overhead cost allocated
per manufacturing labor-hour
$25
$20
Job M1
$275,000
Job M2
$200,000
Direct manufacturing labor costs
Direct manufacturing labor hours
($275,000 ÷ $25; $200,000 ÷ $25)
Manufacturing overhead cost allocated
(11,000 × $20; 8,000 × $20)
11,000
8,000
$220,000
$160,000
Job Costs May 2009
Direct materials
Direct manufacturing labor
Manufacturing overhead allocated
Total costs
Job M1
$ 75,000
275,000
220,000
$570,000
Job M2
$ 50,000
200,000
160,000
$410,000
2.
Number of pipes produced for Job M1
Cost per pipe ($570,000 ÷ 1,500)
1,500
$380
3.
Finished Goods Control
Work-in-Process Control
570,000
570,000
4. Raymond Company began May 2009 with no work-in-process inventory. During May, it
started and finished M1. It also started M2, which is still in work-in-process inventory at the end
of May. M2’s manufacturing costs up to this point, $410,000, remain as a debit balance in the
Work-in-Process Inventory account at the end of May 2009.
4-8
4-28
1.
(20−30 min.) Job costing; actual, normal, and variation from normal costing.
Actual direct cost rate for professional labor = $58 per professional labor-hour
$744,000
15,500 hours
= $48 per professional labor-hour
=
$960,000
16,000 hours
= $60 per professional labor-hour
Budgeted indirect cost rate =
$720,000
16,000 hours
= $45 per professional labor-hour
Actual indirect cost rate =
Budgeted direct cost rate
for professional labor
Direct-Cost Rate
Indirect-Cost Rate
2.
Direct Costs
Indirect Costs
Total Job Costs
(a)
(b)
Actual
Normal
Costing
Costing
$58
$58
(Actual rate)
(Actual rate)
$48
$45
(Actual rate) (Budgeted rate)
(c)
Variation of
Normal Costing
$60
(Budgeted rate)
$45
(Budgeted rate)
(a)
(b)
(c)
Actual
Normal
Variation of
Costing
Costing
Normal Costing
$58 × 120 = $ 6,960 $58 × 120 = $ 6,960 $60 × 120 = $ 7,200
48 × 120 = 5,760 45 × 120 = 5,400 45 × 120 = 5,400
$12,720
$12,360
$12,600
All three costing systems use the actual professional labor time of 120 hours. The budgeted 110
hours for the Pierre Enterprises audit job is not used in job costing. However, Chirac may have
used the 110 hour number in bidding for the audit.
The actual costing figure of $12,720 exceeds the normal costing figure of $12,360
because the actual indirect-cost rate ($48) exceeds the budgeted indirect-cost rate ($45). The
normal costing figure of $12,360 is less than the variation of normal costing (based on budgeted
rates for direct costs) figure of $12,600, because the actual direct-cost rate ($58) is less than the
budgeted direct-cost rate ($60).
4-9
Although not required, the following overview diagram summarizes Chirac’s job-costing
system.
INDIRECT
COST
POOL
COST
ALLOCATION
BASE
Audit
Support
Professional
Labor-Hours
COST OBJECT:
JOB FOR
AUDITING
PIERRE
& CO.
Indirect Costs
Direct Costs
DIRECT
COST
Professional
Labor
4-10
4-31 (20−30 min)
1.
Job costing, accounting for manufacturing overhead, budgeted rates.
An overview of the job-costing system is:
INDIRECT
COST
POOL
}
COST
ALLOCATION
BASE
}
Machining Department
Manufacturing Overhead
Finishing Department
Manufacturing Overhead
Machine-Hours
in Machining Dept.
Direct Manufacturing
Labor Costs
in Finishing Dept.
}
Indirect Costs
COST
COSTOBJECT:
OBJECT:
PRODUCT
JOB
}
DIRECT
COST
2.
Direct Costs
Direct
Materials
Direct
Manufacturing
Labor
Budgeted manufacturing overhead divided by allocation base:
a. Machining Department:
$10,000,000
= $50 per machine-hour
200,000
b. Finishing Department:
$8,000,000
$4,000,000
= 200% of direct manufacturing labor costs
4-11
3.
Machining Department overhead, $50 × 130 hours
Finishing Department overhead, 200% of $1,250
Total manufacturing overhead allocated
4.
Total costs of Job 431:
Direct costs:
Direct materials––Machining Department
––Finishing Department
Direct manufacturing labor —Machining Department
—Finishing Department
Indirect costs:
Machining Department overhead, $50 × 130
Finishing Department overhead, 200% of $1,250
Total costs
$6,500
2,500
$9,000
$14,000
3,000
600
1,250
$6,500
2,500
$18,850
9,000
$27,850
The per-unit product cost of Job 431 is $27,850 ÷ 200 units = $139.25 per unit
The point of this part is (a) to get the definitions straight and (b) to underscore that
overhead is allocated by multiplying the actual amount of the allocation base by the budgeted
rate.
5.
Machining
Manufacturing overhead incurred (actual)
$11,200,000
Manufacturing overhead allocated
220,000 hours × $50
11,000,000
200% of $4,100,000
Underallocated manufacturing overhead
$ 200,000
Overallocated manufacturing overhead
Total overallocated overhead = $300,000 – $200,000 = $100,000
Finishing
$7,900,000
8,200,000
$ 300,000
6.
A homogeneous cost pool is one where all costs have the same or a similar cause-andeffect or benefits-received relationship with the cost-allocation base. Solomon likely assumes
that all its manufacturing overhead cost items are not homogeneous. Specifically, those in the
Machining Department have a cause-and-effect relationship with machine-hours, while those in
the Finishing Department have a cause-and-effect relationship with direct manufacturing labor
costs. Solomon believes that the benefits of using two cost pools (more accurate product costs
and better ability to manage costs) exceeds the costs of implementing a more complex system.
4-12