Example 3
Hero Company uses a job costing system
The company budgeted the following for 2017
The cost records for job 33 contained the following actual figures:
The company uses departmental budgeted overhead rates for applying overhead to production orders on machine hours basis"It means using Normal Costing method"
At the end of 2017, the actual factory overhead costs were 850,000 $ in machining dep., 280,000$ in finishing dep., the actual machine hours for machining dep. Is 160,000 hrs. & finishing dep. Is 200,000 hrs.
Required
1-compute production cost of job 33
2-compute the applied overhead for each dep. And determine if it over allocated or under allocated or equal to actual
The solution
1-we will use the first table only to get the budgeted overhead rates
Machining dep. = 400,000$ / 100,000 hrs. = 4$/m.hrs.
Finishing dep. = 800,000$ / 150,000 hrs. = 5.33$/m.hrs.
2-the production cost of job 33
3-the applied or allocated OHs for each department:
Budgeted rate in machining dep. = 400,000$ / 100,000m.hrs. = 4$/m.hrs.
Budgeted rate in finishing dep. = 800,000$ / 150,000m.hrs.= 5.33$/m.hrs.
After that we need to deal with over or under allocation:
We have 4 methods:
1-to close in the cost of goods sold
2-to divide according to ending balance of Work in process, Finished Goods, Cost of Goods Sold
3-to divide according to balance of allocated overhead in WIP , finished goods , cost of goods sold
4-to adjust the allocation rate
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