Job Costing

Case 1

Fox Manufacturing is a small textile manufacturer using machine-hours as the single

indirect-cost rate to allocate manufacturing overhead costs to the various jobs
contracted during the year. The following estimates are provided for the coming year
for the company and for the Maize High School Science Olympiad Jacket job.

Company Maize High School Job

Direct materials $50,000 $500
Direct manufacturing labor $10,000 $100
Manufacturing overhead costs $40,000
Machine-hours 100,000 mh 800 mh

Required:

a. For Fox Manufacturing, determine the annual manufacturing overhead cost-

allocation rate.

b. Determine the amount of manufacturing overhead costs allocated to the Maize

High School job.

c. Determine the estimated total manufacturing costs for the Maize High School job.

Case 2

1
Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead
costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in
the Machining Department and on the basis of direct labor-hours in the Assembly
Department. At the beginning of 20X5, the following estimates were provided for the coming
year:
Machining Assembly
Direct labor-hours 10,000 dlh 90,000 dlh
Machine-hours 100,000 mh 5,000 mh
Direct labor cost $ 80,000 $720,000
Manufacturing overhead costs $250,000 $360,000

The accounting records of the company show the following data for Job #846:

Machining Assembly
Direct labor-hours 50 dlh 120 dlh
Machine-hours 170 mh 10 mh
Direct material cost $2,700 $1,600
Direct labor cost $ 400 $ 900

Required:
a. Compute the manufacturing overhead allocation rate for each department.

b. Compute the total cost of Job #846.

c. Provide possible reasons why Hill Manufacturing uses two different cost
allocation rates.

Case 3

2
Cowley County Hospital uses a job-costing system for all patients who have surgery. In
March, the pre-operating room (PRE-OP) and operating room (OR) had budgeted allocation
bases of 4,000 nursing hours and 2,000 nursing hours, respectively. The budgeted nursing
overhead charges for each department for the month were $168,000 and $132,000,
respectively. The hospital floor for surgery patients had budgeted overhead costs of
$1,200,000 and 15,000 nursing hours for the month. For patient Fred Adams, actual hours
incurred were eight and four hours, respectively, in the PRE-OP and OR rooms. He was in
the hospital for 4 days (96 hours). Other costs related to Adams were:

PRE-OP OR In-room
Costs Costs Costs
Patient medicine $ 200 $ 500 $2,400
Direct nursing time $1,000 $2,000 $3,000

The hospital uses a budgeted overhead rate for applying overhead to patient stays.

Required:
What is the total cost of the stay of patient Fred Adams?

Answers :
Case 1

A. Annual manufacturing overhead cost allocation rate ( manufacturing overhead cost : total machine
hours.
Annual manufacturing overhead cost allocation rate = $40.000 : 100.000 mh = $0,4/mh
B. Ammount of manufacturing overhead costs allocated to maize high school job = machine hours of
maize high school job X annual manufacturing overhead costs allocation rate.
Ammount of manufacturing overhead costs allocated to maize high school job = 800 mh x 0,4/mh
= $320
C. Estimated total manufacturing costs fot maize high school job :
Direct materials $500
Direct manufacturing labor $100

3
 Manufacturing overhead cost $320
Estimated total manufacturing cost $920

Case 2

A. Machining department
Manufacturing overhead cost allocation rate ( manufacturing overhead cost : total machine hours )
Manufacturing overhead cost allocation rate = $250.000 : 100.000 mh = $2,5/mh
Assembly department
Manufacturing overhead cost allocation rate ( manufacturing overhead cost : total machine hours )
Manufacturing overhead cost allocation rate = $360.000 : 90.000 dlh = $4/dlh
B. Direct materials $4.300
Direct labor $1.300
Manufacturing overhead costs $905
Total costs of job $6.505
C. Provide possible reasons why hill manufacturing uses two different allocation rate.
Reason 1 : to compare the different and which is better and which is better and which is less
therefore might be able to choose the right one and be able to difference betwenthose department.
Reason 2 : maybe because allocation based on department need or company wide and department
allocation and better department strategy when funds are allocated to various departments, the
department will know the budget in advance. This gives the department room to make long term
plans, can apply for more funding for spesific products, and can make better overall management
decisions.

Case 3

Pre operating room Operating room In room

Budgeted nursing $168.000 $132.000 $1.200.000
overhead charges
Budgeted nursing $4.000 $2.000 $15.000
hours
Budgeted overhead 42 66 80

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 rate

Patient medicine ( $200 + $500 + $2.400 ) = $3.100

Direct nursing time ( $1.000 + $2.000 + $3.000 ) = $6.000

Overhead charges :

Pre operating room ( 8 x $42 ) = $336

Operating room ( 4 x $66 ) = $264

In room ( 96 x $80 ) = $7680

Total overhead charge $8.280

Total cost of the stay of patient $17.380