Question 1- Job Costing
A company has two manufacturing departments. In order to cost jobs, overhead is estimated at the beginning of each period and is divided by estimated labour hours for the period to come up with an overhead rate per hour that can be applied to jobs.
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Machining
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Finishing
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Total
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Est OH Costs
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$70,000
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$30,000
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$100,000
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Est Lab Hours
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15,000
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35,000
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50,000
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OH Rate $2 an hour
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Actual Manufacturing Costs and Labour hours were:
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Act OH Costs
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$75,000
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$33,000
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$108,000
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Act Lab Hours
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16,000
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38,000
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54,000
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Jobs tend to use the departments in different proportions. Some require more machining and some more finishing. The company is considering using specific department overhead rates rather than just a single plantwide rate to apply overhead. You have been asked to make a recommendation . You have chosen to use one job as an example.
Job X uses 10 hours in machining and 8 hours in finishing. Under the current system, how much overhead will it be charged? If department rates are used, how much overhead will it be charged?
Make a recommendation and explain why one method is better than another in a competitive bidding situation.
For the company, show whether overhead was over or under applied using an overhead t account
Question 2 - Process Costing
You are starting a new job as an internal accountant. You have been asked to verify the following ending inventory balances: WIP $660,960 and FG $1,009,800 Note that labour and overhead are 50% complete in ending WIP.
The following information is available to you:
1) Material is added at the beginning of the process.
2) Labour occurs evenly throughout the process and overhead is applies at a rate of 60% of direct labour cost.
3)
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Units
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Material
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Labour
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WIP Beginning
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200,000
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$200,000
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$315,000
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80% complete re labour and overhead
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Started
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1,000,000
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$1,300,000
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$1,995,000
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Completed
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900,000
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Ending WIP
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?
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Beginning FG
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0
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Ending FG
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200,000
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Required:
Come up with a value for ending WIP and FG showing your calculations using the following frameworks...do one using WA and one using FIFO. Comment on the correct value to be used in the Financial Statements if the company uses WA.