Question

   Q 1 Job Costing

       You have the information related to Nasser Compagny:

                                                    Direct              Direct                Direct

                                                  Materials       Labor Cost      Labor Hours

Job 200               $200                $800                    40

Job 201                 250                  200                    10

Job 202                 500                  600                    32

Nasser Compagny uses job costing and applies overhead using a normal costing system using direct labor hours as the allocation base.

The estimated overhead cost is $400,000, estimated direct labor cost is $500,000 and estimated direct labor hours are 25,000.

The actual overhead cost was $420,000, actual direct labor cost was $390,000, and actual direct labor hours were 20,000.

What is the overhead allocation rate?

What is the total manufacturing cost of Job 200?

Discuss when Job costing is used and the process of allocating cost using job costing.

Answer 1

Overhead Allocation Rate - Estimated Overhead Cost / Direct Labour Hours

                                          - 400,000 / 25000

Overhead Allocation Rate - 16/Hour

Calculation of Manufacturing Cost for Job 200

Job 200, Cost Sheet

Direct Material                200

Direct Labour                  800

Direct Overhead            640   (Overhead rate x Direct labour hours)

Total Cost of Job          1640

Job costing is used by companies who manufacture customised products or when each product is different from each other. In these cases cost of the product has to be determined individually. For this purpose direct costs are assigened to each job. This helps to track the direct costs like material and labour used for that particular product. A predetermined over head rate is applied for indirect expenses by the management to cover the indirect cost. This is because, the indirect expenses will be known only at the end of the period. A job cost sheet is prepared to consolidate the cost of each product/job.