Question

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.

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

Answer 1

Answer:

Overhead allocation rate = estimated direct labor cost / estimated direct labor hours

= 500000 / 25000

= 20

Total manufacturing cost of job 200

direct material = 200

direct labor = 800

overhead(40*20) = 800

total cost = 1800

Total manufacturing cost of job 201

direct material = 250

direct labor = 200

overhead(10*20) = 200

total cost = 650

Total manufacturing cost of job 202

direct material = 500

direct labor = 600

overhead(32*20) = 640

total cost = 1740

Discuss when Job Casting:

Job casting is used when there fixed procedure and process is involved. Job costing is used by companies who manufacturing the customised products or when each product is vary from other product. Also where we apply absorption rate of overhead means where time or consumption can be defined easily. This helps to track the direct costs like material and labour used for that particular product. Job means to perform a task which might includes time, effort & material. A predetermined over head rate is applied for indirect expenses by the management to cover the indirect cost. so for material we can account accordingly. But effort that is labour & overhead so we need to estimate a fixed rate to allocate expenses accordingly. 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.