Pablito, Jacquelyn F.

CBEA-01-301P
Midterm Requirement
CHAPTER 6

Exercise 1 (Job costing; actual and normal costing)

Required:
1. Actual professional labor cost rate is P58 per hour.

(a) Formula to calculate the actual indirect-cost rate.

Actual indirect-cost rate = Actual indirect-costs / Actual direct labor-hours

P 744,000
Actual indirect-cost rate = 15,000 hrs

Actual indirect-cost rate = P 48 per professional labor-hour

Formula to calculate the budgeted indirect-cost rate.

Budgeted indirect-cost rate = Budgeted total costs in indirect cost pool
Budgeted total professional labor-hours

P 960,000
Budgeted indirect cost rate = 16,000 hrs

Budgeted indirect cost rate = P 60 per professional labor-hour

(b) Formula to calculate the budgeted professional labor-hour direct-cost rate.

Budgeted professional labor-hour direct-cos rate = Budgeted total direct labor compensation
Budgeted total direct labor-hours

P 720,000
Budgeted professional = 16,000 hrs
labor-hour direct cost rate

Budgeted direct cost rate = P 45 per professional labor-hour

(a) (b)
Actual Costing Normal Costing

Direct-Cost Rate P 53 P 53
(Actual Rate) (Actual Rate)

Indirect-Cost Rate P 48 P 45
(Actual Rate) (Budgeted Rate)
 2. C
 hips and Partners should choose a job-costing system based on the direct cost information
available to them. If Chips and Partners knows direct costs as the jobs are being done, I would
recommend Chips and Partners use normal costing over actual costing by calculating a budgeted
indirect cost rate to cost jobs. Normal costing enables Chips and Partners to use the budgeted
indirect cost rate calculated at the beginning of the year to estimate the cost of a job as soon as the
job is completed. Chips and Partners can use knowledge of job costs for ongoing uses, including
pricing jobs, monitoring and managing costs, evaluating the success of the job, learning about
what did and did not work, bidding on new jobs, and preparing interim financial statements. Under
actual costing, Chips and Partners would only determine the cost of a job at the end of the year
when actual indirect costs are known. To be useful, of course, the budgeted indirect cost rate and
the allocated costs need to reasonably approximate the actual indirect cost rate and the actual
costs.

If Chips and Partners does not know direct costs as the jobs are being completed, I would
recommend that Chips and Partners use the variation of normal costing that calculates a budgeted
direct cost rate. This would allow Chips and Partners to estimate costs on a more-timely basis and
gain all the benefits discussed earlier in the context of indirect costs. However, if Chips and Partners
does use the variation of normal costing, it needs to do a better job of estimating the budgeted
direct cost rate. Currently, the budgeted direct cost rate (P60) is much greater than the actual rate of
P53 per professional labor hour. If the difference is too large, the budgeted costs allocated to jobs
will not approximate the actual costs incurred causing Chips and Partners to misunderstand its
costs before actual costs are known.

Exercise 2

Required:
1. The direct materials costs for titanium blanks and hardened nibs would be recorded on the
company's materials requisition form or material ledger. The direct labor costs for Kristine and
Clarisse would be recorded on the company's time cards or ticket and or in the labor ledger. The
Job Cost Sheet that compiles all of the costs that go into a particular job that is designed to help
accountants track the cost of individual projects and jobs.

2.

Material Requisition form

Item Name Requisition No. Date Quantity(a) Unit Cost(b) Total Cost(a*b)

Titanium Blanks KC 123 501 5th March 40 80 3200

Hardened Nibs KC 123 503 8th March 960 6 5760
Total 8960

The cost of the titanium blanks for Job KC123 is P80/ blank x 40 blanks = P3,200

The cost of the hardened nibs for Job KC123 is P6/nib x 960 nibs = P5,760
 Time Ticket for Kristine
Date Starting Time End Time Completed Hours(a) Rate(b) Amount(a*b)
9th March KC 123 9:00 AM 12:15 PM 3.25 120 390

The cost of Kristine's labor for Job KC123 is P120/hour x 3.15 hours = P 390

Time Ticket for Clarisse

Date Starting Time End Time Completed Hours(a) Rate(b) Amount(a*b)
21st March KC 123 2:15 PM 4:30 PM 2.25 140 315

The cost of Clarisse's labor for Job KC123 is P140/hour x 2.15 hours = P 315

Job Cost Sheet( KC 123)

Particulars Amount
Direct Material 8960
Direct Labour
-Kristine 390
-Clarisse 315 705
Total 9665

Therefore, the total cost recorded on the materials requisition form or material ledger for Job KC123
would be P3,200+ P5,760 = P 8,960

The total cost recorded on the time cards or labor ledger for Job KC123 would be P390 + P315 = P 705

TOTAL JOB COST = P 9,639

Exercise 3 (Applying Overhead with Various Bases)

Required:
1. Predetermined overhead rates:

Company X:
Estimated total manufacturing overhead cost
Predetermined overhead rates = Estimated total direct labor-hours (allocation base)

P 432,000
Predetermined overhead rates = 60,000 DLHs

Predetermined overhead rates = P7.20 per direct labor-hour

 Company Y:

Estimated total manufacturing overhead cost

Predetermined overhead rates = Estimated total machine-hours (allocation base)

P 270,000
Predetermined overhead rates = 90,000 MHs

Predetermined overhead rates = P3.00 per machine-hour

Company Z:

Estimated total manufacturing overhead cost

Predetermined overhead rates = Estimated total raw materials cost (allocation base)

P 384,000
Predetermined overhead rates = 240,000 materials cost

Predetermined overhead rates = 160% of materials cost

2. Solution:

Direct labor-hours
Job 237 7,000
Job 238 30,000
Job 239 21,000
Total actual hours 58,000

Actual overhead costs incurred P 420,000

Overhead cost applied to Work in Process:
58,000 actual hours x P7.20 per hour 417,600
Underapplied overhead cost P 2,400

Exercise 4 (Departmental Overhead Rates)

Required:
Bobcat Company
Giving the following information:
The Milling Department bases its rate on machine-hours, and the Assembly Department
bases its rate on direct labor-hours.
 1. Milling Department:

Estimated total manufacturing overhead cost

Predetermined overhead rates = Estimated total machine-hours (allocation base)

P 510,000
Predetermined overhead rates = 60,000 MHs

Predetermined overhead rates = P8.50 per machine-hour

Assembly Department:

Estimated total manufacturing overhead cost

Predetermined overhead rates = Estimated total direct labor cost (allocation base)

P 800,000
Predetermined overhead rates = 640,000 direct labor cost

Predetermined overhead rates = 125% of direct labor cost

2.
Overhead Applied
Milling Department: 90 machine-hours x P8.50 per MH P765
Assemble Department: P160 x 125% 200
Total overhead cost applied P965

3. Yes; if some jobs required a large amount of machine time and little labor cost, they would be
charged substantially less overhead cost if a plantwide rate based on direct labor cost were being
used. It appears, for example, that this would be true of job 123 which required considerable
machine time to complete, but required only a small amount of labor cost.

Exercise 5

Required:
The predetermined overhead rate is computed as follows:

Estimated total manufacturing overhead P 586,000

Divided by: Estimated total direct labor hours (DLHS) 40,000 DLHs
Predetermined overhead rate P 14.65 per direct labor-hour
OR

Jimmy Products:
Estimated total manufacturing overhead cost
Predetermined overhead rates = Estimated total direct labor-hours (allocation base)

P 586,000
Predetermined overhead rates = 40,000 DLHs

Predetermined overhead rates = P14.65 per direct labor-hour