ACG 2071 Lecture Notes - Lecture 4: Direct Labor Cost, Cost Driver, Financial Statement

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chocolateleopard236

9 Sep 2018

School

University of Florida

Department

Accounting

Course

ACG 2071

Professor

Schadewald

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Document Summary

Companies that use job costing: produce unique products or small batches ( jobs , result accumulate costs separately for each job, examples hospitals, consulting firms, home builder. Manufacturing overhead (moh: costs related to production operations as a whole, not feasible to trace to specific jobs, result allocate portion to all jobs using predetermined rate. Moh allocated to a job = predetermined overhead rate(pohr) x actual amount of allocation base used by the job. Pohr = [estimated total annual moh costs / estimated total annual units of allocation base (operating activity)] Steps in calculating pohr: estimate total annual moh costs, select an allocation base, estimate total units of allocation base for year, divide estimated total costs (step 1) by estimated total units of allocation base (step 3) Potential allocation bases: primary factor that causes moh costs to vary ( cost driver , examples direct labor hours, direct labor cost, machine hours, units produced (if just 1 product)

Related Questions

AirComp Corporation produces component parts for the aircraftindustry. In prior years, they maintained a job-costing systemconsisting of direct materials and direct labor cost andmanufacturing overhead. Manufacturing overhead was allocated toproduction jobs using a single-indirect cost allocation rate, whichwas $115 per direct labor hour.

For 20x1, the Company decided to change the method of allocatingmanufacturing overhead to production jobs from the single-indirectcost allocation approach to the activity-based costing (âABCâ)indirect cost allocation approach. For purposes of developing theABC allocation rates, AirCompâs cost accounting team prepared thefollowing analysis:

Activity	Cost Driver	Allocation Rate
Material handling	Parts handled	$0.40
Lathe work	No. of lathe turns	$0.20
Milling	Machine hours	$20.00
Grinding	No. of parts ground	$0.80
Testing	No. of units tested	$15.00

For 20x1, AirCompâs cost accountant team prepared the followinganalysis of the direct costs and indirect cost activities for Job100 and Job 200, the only production jobs in process for theperiod:

	Job 100	Job 200
Direct materials cost	$9,700	$59,900
Direct labor cost	$750	$11,250
No. of direct manufacturing labor hours	25	375
No. of parts ground	500	2,000
No. of lathe turns	20,000	60,000
Machine hours	150	1,050
No. of units produced during period (all are tested)	10	200

Required

1.For each job, determine total per unit cost using direct laborhours to allocate manufacturing overhead to each job.

2.For each job, determine total per unit cost using anactivity-based costing approach to allocate manufacturing overheadcost to job.

3.Compare the per unit cost figures for each job computed instep a. and step b., above. Why do the new ABC approach differ fromthe single-indirect cost allocation systems differ in the amount ofthe per unit indirect cost allocated to each job (i.e. what was theimplications of the cost allocation method change on the amount ofper unit cost allocated to each job and what factors caused theobserved changes).

4.How might AirComp Corporation use the information from ABCallocation approach to better manage its business, i.e. what arethe advantages of using an activity-based costing approach?

oliveleopard246

Sweeten Company had no jobs in progress at the beginning ofMarch and no beginning inventories. It started only two jobs duringMarchâJob P and Job Q. Job P was completed and sold by the end ofthe March and Job Q was incomplete at the end of the March. Thecompany uses a plantwide predetermined overhead rate based ondirect labor-hours. The following additional information isavailable for the company as a whole and for Jobs P and Q (all dataand questions relate to the month of March):


Estimated total fixed manufacturing overhead	$	14,400
Estimatedvariable manufacturing overhead per direct labor-hour	$	1.50
Estimatedtotal direct labor-hours to be worked		3,600
Total actualmanufacturing overhead costs incurred	$	19,500

Actual direct labor-hoursworked

2,700

800

1. Prepare a completed Work in Process T-account including thebeginning and ending balances and all debits and credits posted tothe account.

2. Prepare a schedule of cost of goods sold

3. Prepare the journal entry to transfer costs from FinishedGoods to Cost of Goods Sold.

Assume that Job P includes 35 units that each sell for $2,600and that the companyâs selling and administrative expenses in Marchwere $13,000. Prepare an absorption costing income statement forMarch.

coralduck106

Case 3-49

Avid Assemblers uses normal job-order costing to assign costs toproducts. The company assembles and packages 25 different productsaccording to customer specifications. Products are worked on inbatches of 20 to 40 units. Each batch is given a job number. OnOctober 1, the company had the following balances:

Raw materials		$9,800
Work in process		65,847
Finished goods		30,640

Work in process consisted of the following jobs:

	Job 22	Job 24	Job 25
Direct materials	$6,200	$5,190	$4,800
Direct labour	10,500	9,210	9,500
Applied overhead	7,350	6,447	6,650
Total	$24,050	$20,847	$20,950
Number of units	20	40	30

Finished goods consisted of Job 23, with the following costs:

		Job 23
Direct materials		$8,200
Direct labour		13,200
Applied overhead		9,240
Total		$30,640
Number of units		50

Shown below are the direct cost data related to jobs started inOctober:

	Job 26	Job 27	Job 28	Total
Direct materials	$5,180	$5,600	$4,200	$14,980
Direct labour	11,200	9,340	5,910	26,450
Number of units	20	30	20

Other information:

Direct materials and direct labour added tobeginning work in process in October were as follows:

	Job 22	Job 24	Job 25	Total
Direct materials	$1,150	$610	$1,500	$3,260
Direct labour	3,000	4,500	5,500	$13,000

Overhead is applied at a predetermined rate basedon the direct labour cost.

Actual expenses for October were as follows:

Supervisory salaries	$6,000	Supplies (factory)	$2,100
Factory rent	5,000	Selling expenses	8,500
Depreciation (machines)	5,000	Property tax and insurance	2,250
Indirect labour	4,000	CPP, EI, and other benefits*	4,200

* 80% of employer contributions and benefits relate to factorypersonnel.

Purchases of direct materials (raw materials)during October amounted to $28,500. Indirect materials (supplies)are handled in a separate account.

Only Job Nos. 27 and 28 are still in process atclosing on October 31. Finished goods consisted only of Job No. 25at month end.

Avid writes off any under- and over-applied overhead to Cost ofGoods Sold in the month in which it is incurred.

Requirements:

a.Calculate Predetermined overhead rate

b.Calculate Unit cost of job 24 in October

c.Calulate the Oct 31 Balances for the following account:

Raw Materials, Work in Process, Finished Goods

d.What is the cost of goods manufactured?

e. Determine the under- or over- paid in October

Prepare the journal entry to dispose of this amount.

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ACG 2071 Lecture Notes - Lecture 4: Direct Labor Cost, Cost Driver, Financial Statement

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