Question

The Solomon Company uses a job costing system at its Dover, Delaware plant. The plant has a machining department. Its job costing system has two direct cost categories (direct materials and direct manufacturing labour) and two manufacturing overhead cost pools (the machining department, allocated using machine hours and the finishing department, allocated using manufacturing labour costs). The 2002 budget for the plant is

                                                              Machining Dept.                                       Finishing Dept.

Manufacturing overhead                                            $10,000,000                                                        $8,000,000          

Direct manufacturing labour cost                              $900,000                                                              $4,000,000

Direct Manufacturing labour hours                          30,000                                                                   160,000

What is the budgeted overhead rate that should be used in the machining department? In the finishing department?

During the month of January, the cost record for job 431 shows the following:

                                                                                    Machining department                             Finishing Dept.                                                                                                                                                                                                                 

Direct materials used                                                     $14000                                   $3000

Direct manufacturing labour costs                            $600                                             $1250

Direct manufacturing labour hours                          30                                                  50

Machine hours                                                                  130                                          10

What is the total manufacturing overhead allocated to job 431?

Assume that job 431 consisted of 20 units of product, what is the unit product cost?

Balances at the end of 2002 are as follows:

Machining Dept.Finishing Dept.

Manufacturing overhead incurred $11,200,000$7,900,000

Direct manufacturing labour costs$950,000$4,100,000

Machine hours220,00032,000

Compute the manufacturing overhead variance for each department and for the Dover plant as a whole.

Answer 1

1	Budgeted overhead Rate:
		Machining	Finishing
	Budgeted Overhead	10000000	8000000
	Overhead allocation based on:
	Machine Hours	200000		(Machine hour skipped in question, hence taken on assumption basis 200000)
	Direct Labor Cost		4000000
	Overhead Rate (Budgeted Ovehread/Machine hour or Direct Labor cost)	50 Per Machine Hour	200% of Direct Labor Cost
2	Overhead allocated to Job 431:
	Machining	Machine Hour*Rate	130*50=6500
	Finishing	Direct Labor Cost*Rate	1250*200%=2500
	Total Overhead Allocated	6500+2500	9000
3	Unit Product Cost:
		Machining	Finising	Total
	Direct Material	14000	3000	17000
	Direct Labor	600	1250	1850
	Overhead (From Part-2)	6500	2500	9000
	Total Cost			27850
	Units Prodcuted			20
	Unit Cost 27850/20			1392.5
4
		Machining	Finishing
	Budgeted Overhead	10000000	8000000
	Overhead Incurred	11200000	7900000
	Budgeted
	Machine Hour	200000
	Labor Cost		4000000
	Actrual
	Machine Hour	220000
	Labor Cost		4100000
	Budgeted Overhead Per Unit	50	2
	Actual Overhread Per unit	51	1.93
	Variance:
	Direct Ovh Rate Variance	(50-51)*220000	(2.00-1.93)*4100000	(SP-AP)*AQ
		220000 Un	287000 F
	Direct OVH Efficiency Variance	(200000-220000)*50	(4000000-4100000)*2	(SQ-AQ)*SP
		1000000 Un	200000 Un