Question

Gauteng Potteryworks makes a variety of pottery products that it sells to retailers. The company uses job-order costing system in which predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Moulding Department is based on machine-hours, and the rate in the Painting Department is based on Direct labour cost. At the beginning of the year, the company's management made the following estimates:

	Department: Moulding	Painting
Direct labour costs	12,000	60,000
Machine -Hours	70,000	8,000
Direct Material Cost	R510,000	R650,000
Direct Labour Cost	130,000	420,000
Manufacturing Overhead cost	602,000	735,000

Job 205 was started on the 01 August and completed on the 10 August. The company's cost records show the following information concerning the job:

	Department: Moulding	Painting
Direct Labour-Hours	30	85
Machine -Hours	110	20
Material Placed into production	R470	R332
Direct labour cost	290	680

Required:

1. Compute predetermined overhead rate used during the year in the Moulding Department. Compute the rate used in the Painting Department.

2. Compute the total overhead cost applied to Job 205.

3. What would be the total cost recorded for Job 205 ? If the Job contained 50 units, what would be the cost per unit?

4. At the end of the year, the records of Gauteng Potteryworks revealed the following actual cost and operating data for all jobs worked on during the year:

	Department: Moulding	Painting
Direct Labour-Hours	10,000	62,000
Machine Hours	65,000	9,000
Direct Material Cost	R430,000	R680,000
Direct Labour-Cost	108,000	436,000
Manufacturing overhead cost	570,000	750,000

What was the amount of under-or overapplied overhead in each department at the end of the year?

Answer 1

1.

Moulding Department Predetermined overhead rate = Estimated manufacturing overheads/Estimated machine hours

= 602,000/70,000

= $8.6 per machine hour

Painting Department Predetermined overhead rate = Estimated manufacturing overheads/Estimated direct labor cost

= 735,000/420,000

= R1.75 per R labor cost

2.

Overhead cost applied in the Moulding department = Number of machine hours x Moulding Department Predetermined overhead rate

= 110 x 8.6

= 946

Overhead cost applied in the Painting department = Direct labor cost of Painting department x Painting Department Predetermined overhead rate

= 680 x 1.75

= 1,190

Total overhead cost applied to Job 205 = Overhead cost applied in the Moulding department + Overhead cost applied in the Painting department

= 946 + 1,190

= 2,136

3.

	Moulding	Painting	Total
Material Placed into production	470	332	802
Direct labour cost	290	680	970
Overheads applied	946	1,190	2,136
Total cost	1,706	2,202	3,908

Total cost recorded for Job 205 = 3,908

Cost per unit = Total cost/Number of units

= 3,908/50

= 78.16

4.

Moulding department over applied overhead cost = Applied overhead - Actual overhead

= 602,000 - 570,000

= $32,000

Painting department under applied overhead cost = Actual overhead - Applied overhead

= 750,000 - 735,000

= 15,000