Management Accounting for Business

Dr. Mohamed A. Hamada Lecturer of Accounting Information Systems

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Practical Cases on Job-order costing systems

• ABX Company uses a normal job-order costing system. The company has two departments through which most jobs pass. Selected budgeted and actual data for the past year as follow:

• During the year, several jobs were completed. Data pertaining to one such job, Job #10, follow:

• ABX Company uses predetermined overhead rate to assign overhead to jobs. Direct labor hours (DLH) are used to compute the predetermined overhead rate.

• Required• 1. Compute the predetermined overhead rate. POHR• 2. Using the predetermined rate, compute the per-unit

manufacturing cost for Job #10.• 3. Recalculate the unit manufacturing cost for Job #10 using

departmental overhead rates. Use direct labor hours for Department A and machine hours for Department B.

Solution

Estimated total manufacturingoverhead cost for the coming period

Estimated total units in theallocation base for the coming period

POHR =

The predetermined overhead rate

Budgeted overhead = 100000 A + 500000 B = 600000$

• 2- compute the per-unit manufacturing cost for Job #10.

*Direct labor = 5000 DLH *6$ (DEP. A ) + 1000 DLH * 6$ (Dep. B) 30000+6000

Overhead = Rate (10$ ) * DLH (5000+1000)= 60000 $

3-Recalculate the unit manufacturing cost for Job #10

• POHR (A) =. The predetermined rate for Department A is

$100,000/50,000 = $2 per DLH.50,000 Expected direct labor hours for A

Use direct labor hours for Department A and machine hours for Department B

Estimated total manufacturingoverhead cost for the coming period

Estimated total units in theallocation base for the coming period

POHR =

• POHR (B) =

• The predetermined rate for Department B is $500,000/50,000 = $10 per MHr.

- 50,000 Expected machine hours for B

Estimated total manufacturingoverhead cost for the coming period

Estimated total units in theallocation base for the coming period

POHR =

cost for Job #10

Overhead Dep. A = Rate 2 * 5000 DLH for ADep. B = Rate 10 * 1200 DMH for B

*Direct labor = 5000 DLH *6$ (DEP. A ) + 1000 DLH * 6$ (Dep. B) 30000+6000

Case 2• AZ, Inc., designs and builds projects for individual

customers. On August 1, there were two jobs in process: Job #614 with a beginning balance of $10,200; and Job 615 with a beginning balance of $9,670. AZ applies overhead at the rate of 60 percent of direct labor cost.

• During August, Jobs #616 and #617 were started. Data on August costs for all jobs are as follows:

During August, Jobs #616 and #617 were started. Data on August costs for all jobs are as follows:

Required1. Prepare job-order cost sheets for each job as of the end of August

Solution