Chapter 3, Problem 3.15E

1.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To compute: The predetermined overhead rate, total manufacturing cost established bit price and cost of goods sold.

Answer to Problem 3.15E

Plantwide predetermined overhead rate is $20 per machine hour, The Manufacturing cost assigned to job D-70 is $1,460,000 ,Bid price for job D-70 is $2,325,000, Bid price for job C-200 is $3,010,000.

Explanation of Solution

1. Estimate total fixed manufacturing overhead co

Total overhead cost (Y):

Estimated total fixed overhead (a) is $910,000

Estimated variable overhead cost per machine hour molding ( $b_1$ ) is $3.00

Machine hour for molding required to support estimated production ( $X_1$ ) 20,000

Estimated variable overhead cost per machine hour for fabrication ( $b_2$ ) $1

Machine hour fabrication to support estimated production ( $X_2$ ) 30,000

Total overhead cost (Y): $Y=a+b_1\times X_1+b_1\times X_2$

  $\begin{array}{l}Y=a+b_1\times X_1+b_1\times X_2\\ =\$9100,000+(\$3.00\times 2000)+(\$1.00\times 30000)\\ Y=\$1,000,000\end{array}$

  $\begin{array}{l}pre\det er\mathrm{mined}overheadrate=\frac{Estimatedtotalmanufacturingoverhead\cos t}{Estimatedtotalamountofallocationbase}\\ =\frac{\$1,000,000}{50,000}\\ =\$20\end{array}$

Plantwide predetermined overhead rate is $20 per machine hour

2. Manufacturing cost assigned to job D-70

Particular	Molding	Fabrication	Total
Direct materials	375000	325000	700000
Direct labor	200000	160000	360000
Overhead	280000	120000	400000
Total manufacturing cost	855000	605000	1460000

The Manufacturing cost assigned to job D-70 is $1,460,000

Manufacturing cost assigned to job C-220

Particular	Molding	Fabrication	Total
Direct materials	300000	250000	550000
Direct labor	175000	225000	400000
Overhead	120000	480000	600000
Total manufacturing cost	855000	955000	1550000

The Manufacturing cost assigned to job D-70 is $1,550,000

3. Bid price of job D-70

Bid price are 150% of the total manufacturing cost:

Total manufacturing cost is $1460000

  $\begin{array}{l}bidprice=\mathrm{cost}\times 150\%\\ =1460000\times \frac{150}{100}\\ =\$2,190,000\end{array}$

Bid price of job C-200

Bid price are 150% of the total manufacturing cost:

Total manufacturing cost is $1460000

  $\begin{array}{l}bidprice=\mathrm{cost}\times 150\%\\ =1550000\times \frac{150}{100}\\ =\$2,325,000\end{array}$

Bid price for job D-70 is $2,325,000

4. Cost of goods sold:

  $\begin{array}{l}Costofgoodssold=beginninginventory+Purchase-endinginventory\\ =manufacturing\cos tofjobD-70+manufacturingofjobC-200\\ =\$1,460,000+\$1,550,000\\ =\$3,010,000.\end{array}$

Bid price for job C-200 is $3,010,000

2.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

To compute: The predetermined overhead rate, total manufacturing cost established bit price and cost of goods sold.

Answer to Problem 3.15E

The unit product cost of D is $90 and R is $50

Explanation of Solution

1. Total overhead cost (Y):

Estimated total fixed overhead (a) is $700,000

Estimated variable manufacturing overhead cost per machine hour molding ( $b_1$ ) is $3.00

Machine hour for molding required to support estimated production ( $X_1$ ) 20,000

Total overhead cost (Y): $Y=a+b_1\times X_1$

  $\begin{array}{l}Y=a+b_1\times X_1\\ =\$700,000+(\$3.00\times 2000)\\ Y=\$760,000\end{array}$

  $\begin{array}{l}pre\det er\mathrm{mined}overheadrate=\frac{Estimatedtotalmanufacturingoverhead\cos t}{Estimatedtotalamountofallocationbase}\\ =\frac{\$760,000}{20,000}\\ =\$38\end{array}$

  $\begin{array}{l}pre\det er\mathrm{mined}overheadrate=\frac{Estimatedtotalmanufacturingoverhead\cos t}{Estimatedtotalamountofallocationbase}\\ =\frac{\$240,000}{30,000}\\ =\$8\end{array}$

2. Total manufacturing cost assigned to job D-70

Particular	Amount
Direct material	700000
Direct labor	360000
Overheads
Molding department ( $14000MH\times 38perMH$)	532000
Fabrication department ( $6000MH\times 8perMH$)	48000
Total manufacturing cost	1640000

The total manufacturing cost of Job D-70 is $1,640,000.

Total manufacturing cost assigned to job C-220

Particular	Amount
Direct material	550000
Direct labor	400000
Overheads
Molding department ( $6000MH\times 38perMH$)	228000
Fabrication department ( $24000MH\times 8perMH$)	192000
Total manufacturing cost	1370000

The total manufacturing cost of Job C-220 is $1,370,000.

3. Bid price of job D-70

Bid price are 150% of the total manufacturing cost:

Total manufacturing cost is $1460000

  $\begin{array}{l}bidprice=(Totalmanufacturing\mathrm{cost}\times 150\%)\\ =1640000\times \frac{150}{100}\\ =\$2,460,000\end{array}$

Bid price of job C-200

Bid price are 150% of the total manufacturing cost:

Total manufacturing cost is $1460000

  $\begin{array}{l}bidprice=\mathrm{cost}\times 150\%\\ =1370000\times \frac{150}{100}\\ =\$2,055,000\end{array}$

4. Cost of goods sold:

  $\begin{array}{l}Costofgoodssold=beginninginventory+Purchase-endinginventory\\ =manufacturing\cos tofjobD-70+manufacturingofjobC-200\\ =\$1,640,000+\$1,370,000\\ =\$3,010,000.\end{array}$

3.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead. Absorption costing is used to calculate the cost of product while taking indirect and direct expense into account. Activity based costing assign the cost of all the activity of the organization according to their actual consumption

The managerial insight revealed in the problem.

Answer to Problem 3.15E

The overhead rate in molding ($38 per Mh) is much higher than the fabrication. Bid price using job C-200 are lower by $270000 in departmental approach than the plantwide approach as in department approach as in department approach bid price is $1,370,000 whereas in plant wide approach it is $1,550,000.

Explanation of Solution

The result of such a pool in cost is because of the fact that job D-70 is an intensive user of molding machine hours. The overhead rate in molding ($38 per Mh) is much higher than the fabrication. Bid price using job C-200 are lower by $270000 in departmental approach than the plantwide approach as in department approach as in department approach bid price is $1,370,000 whereas in plant wide approach it is $1,550,000. This shows the fact that Job C-200 is an intensive user of fabrication machine hour.

Job order costing system that have a single plant wide overhead cost are mainly used to value closing inventories and cost of goods sold for external reporting purpose. But a single plantwide overhead rate can create inaccurate in internal system and decision.