Question

Destin Products uses a job-costing system with two direct-cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Destin allocates manufacturing overhead costs using direct manufacturing labor costs. Destin provides the following information (Click the icon to view the information) Read the requirements Requirement 1. Compute the actual and budgeted manufacturing overhead rates for 2020. (Enter your answer as a number (not as a percentage] rounded to two decimal places, X.XX.) Actual manufacturing overhead rate Budgeted manufacturing overhead rate Requirements 1. Compute the actual and budgeted manufacturing overhead rates for 2020 2. During March, the job-cost record for Job 626 contained the following information Direct materials used $50,000 Direct manufacturing labor costs $30,000 Compute the cost of Job 626 using (a) actual costing and (b) noma costing 3. At the end of 2020, compute the under-or overallocated manufacturing overhead under normal costing. Why is there no under-or overallocated overhead under actual costing? 4. Why might managers at Destin Products prefer to use normal costing? Print Done

Answer 1

1.

Job costing method is basically used in manufacturing units where there are diversified product.

Budgeted Manufacturing Overhead Rate can be calculated by dividing budgeted manufacturing overhead by budgeted direct manufacturing labour cost.

Budgeted Manufacturing Overhead Rate = Budgeted manufacturing overhead cost Budgeted direct manufacturing labour cost =$2,550,000 / $1,500,000

=$1.7

Actual Manufacturing Overhead Rate can be calculated by dividing actual manufacturing overhead by actual direct manufacturing labour cost.

Actual Manufacturing Overhead Rate = Actual manufacturing overhead cost Actual direct manufacturing labour cost =$2,627,000 / $1,420,000

=$1.85

2.

Total Manufacturing cost is the sum total of direct material cost, direct labour cost and the overhead cost.

Statement show calculation of cost of Job 626

Particulars	Actual costing	Normal Costing
Direct Material cost	$50,000	$50,000
Direct Manufacturing Labour csot	$30,000	$30,000
Direct manufacturing overhead cost ($30,000*$1.85); ($30,000*1.7)	$55,500	$51,000
Total Cost	$135,500	$131,000

Under actual costing actual overhead rates are used and for normal costing budgeted fixed overhead rates are used for calculation of direct manufacturing overhead cost.

Cost of Job 626 under actual costing is $135,500 and under normal costing is $131,000.

3.

Under allocated overhead means that the overhead cost are taken less than the actual and over allocated overhead cost means cost are charged more than the actual cost.

Under Normal costing

Manufacturing overhead cost allocated= Actual manufacturing labour cost * Budgeted overhead rate

= $1,420,000*$1.7

= $2,414,000

Underallocated manufacturing overhead = Actual overhead cost - manufacturing overhead cost allocated

= $2,627,000 - $2,414,000

= $213,000

Under actual costing there is no under or over allocated cost because manufacturing cost is allocated on actual overhead rate which ultimately equlas to the actual manufacturing overhead cost.

4.

Manager prefer to use normal costing because actual rates are not available at the time when job is completed and manager has to charge cost. Therefore, budgeted rates are used.