Rally Baling Sdn Bhd (RBSB) makes custom made kitchen cabinet. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. Currently, RBSB uses a plantwide overhead rate based on direct labor costs in estimating the company manufacturing overhead. The following estimated data have been made by RBSB at the beginning of the year 2020: Department Costs Moulding Assembling Finishing Direct labor hours 10,000 40,000 8,000 Machine hours 50,000 10,000 10,000 Direct labor costs RM50,000 RM80,000 RM50,000 Direct materials costs RM120,000 RM165,000 RM70,000 Manufacturing overhead costs RM180,000 RM220,000 RM20,000 Job No. 120 was started on 1 January 2020 and completed on 31 January 2020. This job was ordered by Wan Kemara School in Changlun, Kedah. RBSB’s cost records shown the following information on the Job No. 120: Department Costs Moulding Assembling Finishing Direct labor hours 200 700 800 Machine hours 100 1,200 1,000 Direct labor costs RM2,000 RM12,500 RM5,000 Direct materials costs RM5,000 RM16,000 RM2,500 Manufacturing overhead costs RM4,000 RM22,000 RM12,000 Recently, you as the plant manager have heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. In implementing this new overhead rate base, the predetermined overhead rate in the Moulding Department will be based on direct labor hours; Assembling Department will be based on machine hours; and the rate in the Finishing Department will be based on direct labor costs. REQUIRED: (a) If RBSB uses a plantwide overhead rate: (i) Calculate the predetermined overhead rate for the year 2020. (ii) Determine the total of manufacturing overhead cost applied to Job 120. (b) If RBSB uses departmental overhead rate: (i) Calculate the predetermined overhead rate for each department for the year 2020. (ii) Determine the total of manufacturing overhead cost applied to Job 120. (c) Between the plantwide rate in part (a) (ii) and the departmental rate in part (b) (ii) above, which manufacturing overhead rate would you recommend to be applied for Job 120? Justify your answer.
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.
Rally Baling Sdn Bhd (RBSB) makes custom made kitchen cabinet. The company uses a
|
|
Department |
||
|
Costs |
Moulding |
Assembling |
Finishing |
|
Direct labor hours |
10,000 |
40,000 |
8,000 |
|
Machine hours |
50,000 |
10,000 |
10,000 |
|
Direct labor costs |
RM50,000 |
RM80,000 |
RM50,000 |
|
Direct materials costs |
RM120,000 |
RM165,000 |
RM70,000 |
|
Manufacturing overhead costs |
RM180,000 |
RM220,000 |
RM20,000 |
Job No. 120 was started on 1 January 2020 and completed on 31 January 2020. This job was ordered by Wan Kemara School in Changlun, Kedah. RBSB’s cost records shown the following information on the Job No. 120:
|
|
Department |
||
|
Costs |
Moulding |
Assembling |
Finishing |
|
Direct labor hours |
200 |
700 |
800 |
|
Machine hours |
100 |
1,200 |
1,000 |
|
Direct labor costs |
RM2,000 |
RM12,500 |
RM5,000 |
|
Direct materials costs |
RM5,000 |
RM16,000 |
RM2,500 |
|
Manufacturing overhead costs |
RM4,000 |
RM22,000 |
RM12,000 |
Recently, you as the plant manager have heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. In implementing this new overhead rate base, the predetermined overhead rate in the Moulding Department will be based on direct labor hours; Assembling Department will be based on machine hours; and the rate in the Finishing Department will be based on direct labor costs.
REQUIRED:
(a) If RBSB uses a plantwide overhead rate:
(i) Calculate the predetermined overhead rate for the year 2020.
(ii) Determine the total of manufacturing overhead cost applied to Job 120.
(b) If RBSB uses departmental overhead rate:
(i) Calculate the predetermined overhead rate for each department for the year 2020.
(ii) Determine the total of manufacturing overhead cost applied to Job 120.
(c) Between the plantwide rate in part (a) (ii) and the departmental rate in part (b) (ii) above, which manufacturing overhead rate would you recommend to be applied for Job 120? Justify your answer.
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