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BKAM2013 Management Accounting I

Topic 3: Cost Assignment


Exercise 1
Differentiate between actual costing and normal costing.
Exercise 2
WoodPro Technology Sdn Bhd makes office furniture from quality woods. The
company uses a job-order costing system and predetermined overhead rates to
apply manufacturing overhead cost to jobs. The predetermined overhead rate in
the Preparation Department is based on machine hours, and the rate in the
Fabrication Department is based on direct materials cost. At the beginning of the
year, the companys management made the following estimates for the year:
Department
Preparation
Fabrication
80,000
21,000
35,000
65,000
RM190,000
RM400,000
RM280,000
RM530,000
RM416,000
RM720,000

Machine hours
Direct labor hours
Direct materials cost
Direct labor cost
Manufacturing overhead cost

Job 123 was started on 1 November 2006 and completed on 12 December 2006.
The companys cost records show the following information on the job:
Department
Preparation
Fabrication
350
70
80
130
RM940
RM1,200
RM710
RM980

Machine hours
Direct labor hours
Direct materials cost
Direct labor cost
REQUIRED:
(a)

Compute the predetermined overhead rate used during the year in the
Preparation Department and Fabrication Department.

(b)

Compute the total overhead cost applied to job 123.

BKAM2013 Management Accounting I

(c)
(d)

What would be the total cost recorded for job 123? If the job contained 25
units, what would be the unit product cost?
At the end of the year, the records of WoodPro Technology Sdn Bhd
revealed the following actual cost and operating data for all jobs worked
on during the year:
Department
Preparation
Fabrication
73,000
24,000
30,000
68,000
RM165,000
RM420,000
RM390,000
RM740,000

Machine hours
Direct labor hours
Direct materials cost
Manufacturing overhead cost

What was the amount of underapplied or overapplied overhead in each


department at the end of the year?
Exercise 3
Dont tell me we have lost another bid! exclaimed Roha, president of Rohami
Sdn Bhd. Im afraid so, replied Ramy, the operation vice president. One of our
competitors underbid us by about RM10,000 on the RR2 job. I just cant figure it
out, said Roha. It seems we are either too high to get the job or too low to make
any money on half the jobs we bid any more. Whats happened?
Roha Sdn Bhd manufactures specialized goods to customers specifications and
operates a job-order costing system. Manufacturing overhead cost is applied to
jobs on the basis of direct labor cost. The following estimates were made at the
beginning of the year:

Direct labor
Manufacturing overhead

Cutting
RM300,000
RM540,000

Department
Machining
Assembly
RM200,000 RM400,000
RM800,000 RM100,000

Total Plant
RM900,000
RM1,440,000

Jobs require varying amounts of work in the three departments. The RR2 job, for
example, would have required manufacturing costs in the three departments as
follows:

Direct materials
Direct labor
Manufacturing overhead

Department
Machining
Assembly
RM900
RM5,600
RM1,700
RM13,000
?
?

Cutting
RM12,000
RM6,500
?

Total Plant
RM18,500
RM21,200
?

BKAM2013 Management Accounting I

The company uses a plantwide overhead rate to apply manufacturing overhead


cost to jobs.
REQUIRED:
(a)

Assuming use of a plantwide overhead rate:


(i)
Compute the rate for the current year.
(ii)
Determine the amount of manufacturing overhead cost that would
have been applied to the RR2 job.

(b)

Suppose that instead of using a plantwide overhead rate, the company


had used a separate predetermined overhead rate in each department.
Under these conditions:
(i)
Compute the rate for each department for the current year.
(ii)
Determine the amount of manufacturing overhead cost that would
have been applied to the RR2 job.

(c)

Explain the difference between the manufacturing overhead that would


have been applied to RR2 job using the plantwide rate in part (a) (ii) above
and using the departmental rates in part (b) (ii).

(d)

Assume that it is necessary in the industry to bid jobs at 150% of total


manufacturing cost. What was the companys bid price on the RR2 job if a
plantwide overhead rate is used? What would the bid price have been if
departmental overhead rates had been used to apply overhead cost?

(e)

At the end of the year, the company assembled the following actual cost
data relating to all jobs worked on during the year:

Direct materials
Direct labor
Manufacturing overhead

Cutting
RM760,000
RM320,000
RM560,000

Department
Machining
Assembly
RM90,000
RM410,000
RM210,000 RM340,000
RM830,000
RM92,000

Compute the underapplied or overapplied overhead for the year:


(i)
Assuming that a plantwide overhead rate is used.
(ii)
Assuming that departmental overhead rates are used.

Total Plant
RM1,260,000
RM870,000
RM1,482,000

BKAM2013 Management Accounting I

Exercise 4
Ezy Furnish Sdn Bhd makes furniture using latest automated technology. The
company uses a job-order costing system and applies manufacturing overhead
cost to products on the basis of machine hours. The following estimates were
used in preparing the predetermined overhead rate at the beginning of the year:
Machine hours
Manufacturing overhead cost

75,000
RM900,000

During the year, a glut of furniture on the market resulted in cutting back
production and a buildup of furniture in the companys warehouse. The
companys cost records revealed the following actual cost and operating data for
the year:
60,000
Machine hours.....................................................................................
Manufacturing overhead cost.............................................................. RM850,000
Inventories at year end:
RM30,000
Raw materials......................................................................................
Work in process (includes overhead applied of RM36,000)............ RM100,000
Finished goods (includes overhead applied of RM180,000)........... RM500,000
Cost of goods sold (includes overhead applied of RM504,000)...... RM1,400,000
REQUIRED:
(a)

Compute the companys predetermined overhead rate.

(b)

Compute the underapplied or overapplied overhead.

(c)

Assume that the company closes any underapplied or overapplied


overhead directly to Cost of Goods Sold. Prepare the appropriate journal
entry.

(d)

Assume that the company allocates any underapplied or overapplied


overhead to Work in Process, Finished Goods, and Cost of Goods Sold on
the basis of the amount of overhead applied that remains in each account
at the end of the year. Prepare the journal entry to show the allocation for
the year.

BKAM2013 Management Accounting I

(e)

How much higher or lower will net operating income be if the underapplied
or overapplied overhead is allocated rather than closed directly to Cost of
Goods Sold?