ANSWER-TUTORIAL CHAPTER 3 (JOC)

1.

i.Flour mill = Process Costing

ii.Dairy farm = Process Costing
iii.Electric utility = Process Costing
iv.Custom boat builder = Job Order Costing
v.Management consulting firm = Job Order Costing
vi.Aluminum refiner that makes aluminum ingots from bauxite ore = Process Costing

2.

a. Calculate the predetermined overhead application rate for the year.

POR= Budgeted manufacturing overhead / Budgeted amount of cost driver

POR= Budgeted manufacturing overhead / Budgeted Direct labor hours

POR = $1, 300 000 / 26 000

= $ 50 per direct labor hour

b. Determine the amount of manufacturing overhead applied to work in process during the
year.

Overhead Applied = Rate X Actual Activity

= $50 X 24000 direct labor hours
= $ 1,200 000

c, Determine the amount of underapplied or overapplied overhead for the year.

Actual overhead - Applied overhead

Actual Overhead

Indirect labor 280,000

Indirect 220,000
materials
Insurance 150,000
Utilities 190,000
Repairs & 180,000
maintenance
Depreciation 320,000
TOTAL 1,340,000

over/under applied overhead ($)

134000
Actual Manufacturing overhead
0
(-)Applied Manufacturing Overhead 120000
 0
Under-Applied Overhead 140000

3.

a. Assume that Mahoney uses a plantwide predetermined overhead based on direct labor
hours. Calculate the total cost and the unit cost for each of the 2,000 units produced by Job 1512.

POR = $300,000 / 75 000

= $ 4 per direct labor hour

Cost Summary
Amount
Cost Item
($)
Direct Material 18000
Direct labor 16000
Manufacturing Overhead ($4 X
12000
3000)
Total Cost 46000
Unit Cost (46000/2000) 23

b. Assume that Mahoney uses separate departmental overhead rates based upon direct labor
hours for assembly and upon machine hours for finishing. Calculate the total cost and the unit cost for
each of the 2,000 units produced by Job 1512.

POR

Assembly

$200 000 / 40 000

= $5 per direct labor hour

Finishing

$100 000 / 16 000

= $ 6.25 per machine hour

Total Cost

Applied Overhead = ($5 X 1 700 direct labor hour) + ($ 6.25 X 700 Machine hour)
= $12 875

Cost Summary
Cost Item Amount ($)
Direct Material 18000
 Direct labor 16000
Manufacturing Overhead 12875
Total Cost 46875
Unit Cost (46875/2000) 23.44

4.

a. Compute the predetermined overhead rates for Department A and Department B.

POR= Budgeted manufacturing overhead / Budgeted amount of cost driver

Department A

POR = Budgeted manufacturing overhead / Budgeted Machine hours

= $ 420 000 / 70 000
= $ 6 per machine hour

Department B

POR = Budgeted manufacturing overhead / Budgeted Direct Material Cost

= ($ 705 000 / $ 282 000) X 100%
= 250% of direct material cost

b. Compute the total overhead cost applied to Job 243.

Total Overhead Cost = Overhead Cost Department A + Overhead Cost Department B

Overhead Cost = Rate X Actual Activity

Department A

Overhead Cost = $6 X 250 Machine hours

= $ 1 500

Department B

Overhead Cost = 250% X $ 1 100

= $ 2 750

Total Overhead Cost = $1 500 + $ 2 750

= $4 250

c.Compute the amount of underapplied or overapplied overhead in each department at the end of
the current year.

Department A

Applied Overhead = $ 6 X 61 000

= $ 366 000

over/under applied overhead ($)

Actual Manufacturing overhead 385000
 (-)Applied Manufacturing Overhead 366000
Under-Applied Overhead 19000

Department B

Applied Overhead = 250% X $284 000

= $ 710 000

over/under applied overhead ($)

Actual Manufacturing overhead 705000
Applied Manufacturing Overhead 710000
Over-Applied Overhead 5000