Question

Explain giving examples why it is important to keep current cost in line with planned cost. Using examples where possible, describe the process of job costing used in non-profit organizations.

Why is it important to establish appropriate cost pools?

An electrical component manufacturer has selected direct labour hours as an application base. They plan to sell 35,000 units of copper tubing although the factory has the capacity to produce 40,000 units under normal circumstances.

       Overheads are estimated as follows:

Indirect materials and supplies --------------------------- $96,200

Repairs and maintenance            -------------------------- $24,100

Plant service contracts                  ---------------------------$37,000

Refurbishing cost                          -------------------------- $89,100

Machinery depreciation               ------------------------ $185,000

Factory insurance                          ------------------------- $18,200

Property taxes                                 ---------------------------$4,500

Heat, light and power                   --------------------------$51,700

Miscellaneous factory overhead -------------------------- $6,000

indirect Labour                       -------------------------------$120,000

Materials                                 --------------------------------$80,000

Transportation                         ---------------------------------$25,000

Rent                                        ---------------------------------$40,000

Security Cost                          ---------------------------------$15,000

All overhead costs except depreciation, property taxes and miscellaneous factory overhead are expected to increase by 10% during the year. Depreciation should increase by 12% and a 20% increase in property taxes and miscellaneous overhead is expected. A total of 55,600 direct labour hours was actually used to produce 35,000 units of copper tubing . Direct labour hours is expected to increase to 60,000 hours as production volume increases.

Determine the Total estimated overheads?

Calculate the predetermined overhead rate

Calculate the overhead application rate if 60,000 Direct Labour hours was used in production . Ascertain the overhead applied to the job if it took 120 direct labor hours.

Answer 1