E3-5 Overtime Allocation Arlin Fabrication Company produces tools on a job order basis. During May, two jobs were completed, and the following costs were incurred: Job 401Direct materials. $28,000 Direct labor: Regular 18,000 Job 402 Direct materials. $37,000 Direct labor: Regular 23,000 Overtime premium. 6,000 Other factory costs for the month totaled $16,800. Factory over- head costs are allocated one-third to Job 401 and two-thirds to Job 402. a. Describe two alternative methods for assigning the overtime premium cost to Jobs 401 and 402 and explain how the appro- priate method would be determined. b. Compute the cost of Jobs 401 and 402 under each of the two methods described in part a.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
E3-5 Overtime Allocation Arlin Fabrication Company produces tools on a job order basis. During May, two jobs were completed, and the following costs were incurred:
Job 401Direct materials. $28,000 Direct labor: Regular 18,000
Job 402 Direct materials. $37,000 Direct labor: Regular 23,000 Overtime premium. 6,000
Other
a. Describe two alternative methods for assigning the overtime premium cost to Jobs 401 and 402 and explain how the appro- priate method would be determined.
b. Compute the cost of Jobs 401 and 402 under each of the two methods described in part a.
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