Question

For this assignment, you will be doing tasks related to a manufacturing company that uses job order costing or process costing. Information for the firm is given below.

Sonia Company manufactures custom-made fire trucks and had the following estimates and actual costs for 2016:

Sonia Company Estimates and Actual Costs
	Estimate	Actual
Direct materials used	$1,400,000	$1,500,000
Direct labor	1,000,000	1,050,000
Indirect labor	400,000	375,000
Factory insurance	25,000	25,000
Factory maintenance	100,000	50,000
Factory rent	575,000	550,000
Factory equipment depreciation	100,000	100,000

Work-in-process inventory is $0 at 1/1/16 and $70,000 at 12/31/16. Finished goods inventory is $80,000 at 1/1/16 and $65,000 at 12/31/16.

Step 1

Would Sonia use job order costing or process costing? Why?

Sonia uses a predetermined overhead rate based on direct labor costs. What is the predetermined overhead rate for the current year?

Answer 1

Sania will use job costing , since it is used for heterogenous products according to the specifications of customers .On the other process costing is used for homogeneous products and since Sania manufactures custom made fire trucks it is likely to use job costing predetermined overhead rate = estimated MOH/estimated direct labor cost Estimated MOH indirect labor 400,000 Factory insurance 25,000 Factory maintenance 100,000 Factory rent 575,000 Factory equipment depreciaition 100,000 total estimated MOH 1,200,000 predetermined overhead rate= 1,200,000/1,000,000 120% of direct labor cost