Chapter 19, Problem 2E

To determine

Concept Introduction:

Fixed and Variable Costs in Manufacturing

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Cost allocation of Overheads

• Cost allocation of Overheads takes place on basis of cost objects identified to enable cost allocation. Overheads refer to costs of operations and comprise of direct costs such as manufacturing expenses indirect costs in the form of selling and administrative expenses.

• Examples of Overheads are Salaries of administrative staff, rent of office, advertising expenses etc. The costs of the operations are allocated on basis of cost objects. Cost objects are units of cost allocation identified for overhead allocations and cost estimations.

• Examples of Cost objects for Overhead allocation are Number of units produced, number of labor hours worked etc.

To Determine:

Total cost of the job

Solution:

The total cost of the job is $5,085.