Question

Question 2 (Job costing, accounting for manufacturing overhead rates) 25 Marks) The Matthew Company uses a normal job-costing system at its Minneapolis plant. The plant has a machining department and an assembly department. Its job- costing system has two direct-cost categories (direct materials and direct manufacturing labor) and two manufacturing overhead cost pools (the machining department overhead, allocated to jobs based on actual machine-hours, and the assembly department overhead, allocated to jobs based on actual direct manufacturing labor costs). The 2017 budget for the plant is as follows: Manufacturing overhead Direct manufacturing labor costs Direct manufacturing labor hours Machine hours Machining Department $1,500,000 $1,600,000 120,000 30,000 Assembly Department $5,100,000 $3,000,000 280,000 270,000 Required: 1.Compute the budgeted manufacturing overhead rate for each department. 2.During February, the job-cost record for Job 494 contained the following: Direct materials used Direct manufacturing labor costs Direct manufacturing labor hours Machine-hours Machining Department $12,000 $15,000 1,100 2.800 Assembly Department $78,000 $19,000 1,300 1.100 Compute the total manufacturing overhead costs allocated to Job 494.

Answer 1

1)

Manufacturing Overhead Rate

Machining Department

Total Manufacturing Overhead / Machine Hours = $ 1500000 / 30000 MHR = $50 / MHR

Assembly Department

Total Manufacturing Overhead / Direct Manufacturing Labour Cost

= $5100000 / $3000000 = $1.70 per dollar of Direct Manufacturing Labour Cost

2)

Total Manufacturing Overhead Cost for Job 494

Machining Department Overhead = ( Machine Hours X Rate Per MHr) = (2800 X 50) = $140000

Assembly Department Overhead = ( Direct labour Cost X Rate per Labour Cost) (19000 X 1.70) = $ 32300

Total Manufacturing Overhead $172300

3)

Calculation of Over or Under Absorption of Overhead

Machining Department

Overhead Absorbed = ( Actual Machine Hours X Rate Per Machine Hour) = ( 33000 x 50) = $1650000

Under Absorption of Overhead

= ( Actual Overhead - Overhead Absorbed) = ( $1800000 - $1650000) = $150000

Assembly Department

Overhead Absorbed

= ( Actual Direct Labour Cost X Rate Per dollar of Direct Labour) = ( 3200000 X 1.70) = $5440000

So Overhead Over absorbed = ( Overhead Absorbed - Actual Overhead)

= ( 5440000 - 5300000) = $140000