Managerial Accounting Ch. 3: Job Order Costing Practice Problems

Managerial Accounting

Ch. 3: Job Order Costing

Practice Problems

1.     Predetermined overhead rate: Check Fabrics computes its predetermined overhead rate annually on the basis of direct labour hours. At the beginning of the year it estimated that its total manufacturing overhead would be Tk. 256,000 and total direct labour hours would be 25,000 hours. Its actual total manufacturing overhead for the year was Tk. 245,000 and its actual total direct labour hour was 24,000. Compute the company’s predetermined overhead rate for the year.

2.     Comprehensive (one department): WoodWorks Furnitures makes home office furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the company is based on direct labour cost. At the beginning of the year, the company’s management made the following estimates for the year:

Machine hours	80,000
Direct labour hours	35,000
Direct materials cost	Tk. 190,000
Direct labour cost	Tk. 175,000
Manufacturing overhead	Tk. 356,000

The company’s cost records show the following information on Job 48:

Machine hours	350
Direct labour hours	80
Direct materials cost	Tk. 940
Direct labour cost	Tk. 710

Required:

(a)  Compute the predetermined overhead rate used during the year.

(b)  Compute the total overhead cost applied to job 48.

(c)   What would be the total cost recorded for job 48? If the job contained 40 units, what would be the unit product cost?

(d)  The pricing policy of the company is to add % margin on the manufacturing cost. What is price per unit for the product of Job 48?

3.     Comprehensive (two departments): Dream House Decors makes home office furniture from fine hardwoods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Preparation department is based on direct labour-hours, and the rate in the Fabrication department is based on direct materials cost. At the beginning of the year, the company’s management made the following estimates for the year:

	Department
	Preparation Dept.	Fabrication  Dept.
Machine hours	80,000	21,000
Direct labour hours	35,000	65,000
Direct materials cost	Tk. 190,000	Tk. 400,000
Direct labour cost	Tk. 280,000	Tk. 530,000
Manufacturing overhead	Tk. 416,000	Tk. 720,000

Job 127 was started on April 1 and completed on May 12. The company’s cost records show the following information on the job:

	Department
	Preparation Dept.	Fabrication Dept.
Machine hours	350	70
Direct labour hours	80	130
Direct materials cost	Tk. 940	Tk. 1,200
Direct labour cost	Tk. 710	Tk. 980

Required:

(a)  Compute the predetermined overhead rate used during the year in the Preparation department and the Fabrication department.

(b)  Compute the total overhead cost applied to job 127.

(c)   What would be the total cost recorded for job 127? If the job contained 25 units, what would be the unit product cost?

(d)  The pricing policy of the company is to add 25% margin on the manufacturing cost. What is price per unit for the product of Job 127?

4.     Comprehensive (three departments): Following are data of three departments of Khulna Tools Factory. Predetermined overhead rates are determined as follows: Department A, on direct material cost; Department B, on machine hour; and Department C, on direct labour hour. At the beginning of the year, the company’s management made the following estimates for the year:

	Departments
	A	B	C
Machine hours	2,000	20,000	5,000
Direct labour hours	15,000	1,000	50,000
Direct materials cost	Tk. 80,000	Tk. 35,000	15,000
Estmated Manufacturing overhead	Tk. 150,000	Tk. 200,000	Tk. 350,000

The company’s cost records show the following information on Job 36:

	Departments
	A	B	C
Machine hours used	30	180	60
Direct labour hours	120	50	350
Direct materials cost	Tk. 6,000	Tk. 1,000	Tk. 2,000
Direct labour cost	Tk. 1,800	Tk. 2,000	Tk. 5,000

Required:

(a)  Compute the predetermined overhead rates in different departments.

(b)  Compute the total overhead cost applied to job 36.

(c)   What would be the total cost recorded for job 36? If the job contained 10 units, what would be the unit product cost?

(d)  The pricing policy of the company is to add 50% margin on the manufacturing cost. What is price per unit for the product of Job 36?

5.     Predetermined overhead rate: PBL Tools computes its predetermined overhead rate annually on the basis of machine hours. At the beginning of the year it estimated that its total manufacturing overhead would be Tk. 256,000 and total machine hours would be 25,000 hours. Its actual total manufacturing overhead for the year was Tk. 245,000 and its actual total machine hour was 24,000. Compute the company’s predetermined overhead rate for the year.