Question

Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are: Department A $700,000 Direct materials Direct manufacturing labor$200,000 Manufacturing overhead 100,000 S800,000 S400,000 S600,000 The actual material and labor costs charged to Job #432 and Job #433 were as follows: Job#432 $25,000 Job #433 S32,000 Direct materials: Direct labor $ 8,000 tBS12.000 $20,000 S9,500 $13.500 $23,000 Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year a. Calculate overhead allocation rates for the departments. Department A Department B Overhead allocation rate b. calculate manufacturing overhead allocated to Job #432. From Department A From Department B TOTAL Overhead allocated to Job #432 Overhead allocated to Job #433 c. Calculate total manufacturing costs estimated for Job #432 and Job #433 Total Manufacturing Cost Job #432 Job #433

Answer 1

Concepts and Reason

Costing: It is a process of ascertaining the cost. The cost can be a product, job, contract or service. It involves the study of cost principles, standards, and rules concerning the determination of cost of a product.

Fundamentals

Direct Materials: These are the materials which are used in the Production process which constitutes an integral portion of the final product, the cost of which is identifiable and traceable directly to it. The cost of direct material can be directly chargeable to the final product as compared to the indirect material.

Direct Labor: The manpower which is employed to produce or manufacture the goods is called direct labor. They do not perform functions like administration, selling, maintenance and so on.

Manufacturing Overheads: The costs expensed other than on direct materials and direct labor used in the production process comes under manufacturing overheads.

(A)

The computation of the allocation rate of manufacturing overhead for the Department A is given below:

Manufacturing Overhead (_{Allocation Rate)}  

= Manufacturing Overhead X 100

   Direct Manufacturing Labor

= $6,00,000 X 100 = 300%

$2,00,000

The allocation rate of manufacturing overhead is 300% of the direct labor.

The allocation rate of manufacturing overhead for Department A is 300% of the direct labor. It can be computed by the dividing the amount of manufacturing overhead by the amount of direct manufacturing labor.

The computation of the allocation rate of manufacturing overhead for the Department B is given below:

Manufacturing Overhead (_{Allocation Rate)}  

= Manufacturing Overhead X 100

   Direct Manufacturing Labor

= $400,000 X 100 =50%

$800,000

The allocation rate of manufacturing overhead is 50% of the direct labor.

The allocation rate of manufacturing overhead for Department B is 50% of the direct labor. It can be computed by the dividing the amount of manufacturing overhead by the amount of direct manufacturing labor.

	Department A	Department B
Overhead Allocation Rate	300%	50%

(B)

The computation of the cost of manufacturing overhead allocated to the Job 432 is given below:

Manufacturing Overhead = ( Direct Labor _(A) X Allocation Rate _(A) ) + ( Direct Labor _(B) X Allocation Rate (B) )

= ($8,000 X 300%) + ($12,000 X 50%)

= $24,000 + $6,000

=$30,000

The amount of cost allocated to the Job 432 is $30,000.

The amount of manufacturing overhead allocated to the Job 432 is $30,000. It can be computed by multiplying the labor cast by the allocation rate of both the departments.

The computation of the cost of manufacturing overhead allocated to the Job 433 is given below:

Manufacturing Overhead = ( Direct Labor _(A) X Allocation Rate _(A) ) + ( Direct Labor _(B) X Allocation Rate (B) )

= ($9,500X300%) + ($13,500X 50%)

= $28,500 + $6,750

=$35,250

The amount of cost allocated to the Job 433 is $35,250.

The amount of manufacturing overhead allocated to the Job 433 is $ 35,250. It can be computed by multiplying the labor cast by the allocation rate of both the departments.

	Department A	Department B	Total
Overhead Allocated to Job 432	$24,000	$6,000	$30,000
Overhead Allocated to Job 433	$28,500	$6,750	$35,250

(C)

Calculation of Total Manufacturing Costs estimated for Job 432 and Job 433

	Total Manufacturing Cost
Job 432	$30,000
Job 433	$35,250