Practice Example 1: White Company has two departments, Cutting and Finishing. The company uses a job-order cost system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor cost. At the beginning of the year, the company made the following estimates: Department Direct labor-hours Machine-hours Manufacturing overhead cost Direct labour cost Cutting 6,000 48,000 Direct labor-hours Rs360,000 Rs50,000 Finishing 30,000 5,000 Required: 1. Compute the predetermined overhead rate to be used in each department. 2. Assume that the overhead rates that you computed in (1) above are in effect. The job cost sheet for job 203, which was started and completed during the year, showed the following: Rs486,000 Rs270,000 Cutting 6 80 Rs500 Rs70 Department Finishing 20 4 Rs310 Rs150 Machine-hours Materials requisitioned Direct labor cost Compute the total overhead cost applied to Job 203. 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide overhead rate based on direct labor cost, rather than using departmental rates? Explain. No computations are necessary.
Practice Example 1: White Company has two departments, Cutting and Finishing. The company uses a job-order cost system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor cost. At the beginning of the year, the company made the following estimates: Department Direct labor-hours Machine-hours Manufacturing overhead cost Direct labour cost Cutting 6,000 48,000 Direct labor-hours Rs360,000 Rs50,000 Finishing 30,000 5,000 Required: 1. Compute the predetermined overhead rate to be used in each department. 2. Assume that the overhead rates that you computed in (1) above are in effect. The job cost sheet for job 203, which was started and completed during the year, showed the following: Rs486,000 Rs270,000 Cutting 6 80 Rs500 Rs70 Department Finishing 20 4 Rs310 Rs150 Machine-hours Materials requisitioned Direct labor cost Compute the total overhead cost applied to Job 203. 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide overhead rate based on direct labor cost, rather than using departmental rates? Explain. No computations are necessary.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:Practice Example 1:
White Company has two departments, Cutting and Finishing. The company uses a job-order cost
system and computes a predetermined overhead rate in each department. The Cutting
Department bases its rate on machine-hours, and the Finishing Department bases its rate on
direct labor cost. At the beginning of the year, the company made the following estimates:
Department
Direct labor-hours
Machine-hours
Manufacturing overhead cost
Direct labour cost
Cutting
6,000
48,000
Rs360,000
Rs50,000
Finishing
30,000
5,000
Rs486,000
Rs270,000
Required:
1. Compute the predetermined overhead rate to be used in each department.
2. Assume that the overhead rates that you computed in (1) above are in effect. The job cost
sheet for job 203, which was started and completed during the year, showed the following:
Cutting
6
80
Rs500
Rs70
Department
Finishing
20
4
Rs310
Rs150
Direct labor-hours
Machine-hours
Materials requisitioned
Direct labor cost
Compute the total overhead cost applied to Job 203.
3. Would you expect substantially different amounts of overhead cost to be assigned to some
jobs if the company used a plantwide overhead rate based on direct labor cost, rather than
using departmental rates? Explain. No computations are necessary.
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