Question

Homerisers Inc. is in the business of building houses. Each house is classified as a job,

Job H – 5863 Waterpass Drive
Direct Materials	$25,480
Direct Labor	$32,800
Direct Labor Hours	925

Homerisers Inc (Company Wide)
Total Direct Materials	$326,144
Total Direct Labor	$213,200
Estimated Overhead	$375,000
Actual Overhead	$397,420
Estimated Total Direct Labor Hours	14,250
Actual Total Direct Labor Hours	15,280

Using the 7-Steps for Assigning Costs, compute total manufacturing costs for Job H. The company uses normal costing. Clearly label and explain each step.

Answer 1

Step 1:

Determining the base for allocation:

Here, Estimated Direct Labor hours has to be used as a base for allocation.

Step 2:

Calculation of Pre determined OH Rate:

Estimated Overhead/Estimated Total Direct Labor Hours = 375000/14250 = 26.32 per direct labor hour.

Step 3:

Identifying the Direct Labor hours required for the job.

Here, 925 direct labor hours used for the job.

Step 4:

Allocating Overhead cost:

Allocated OH Cost = 925 * 26.32 = $ 24,346

Step 5:

Determining Total Manufacturing costs for the job:

Particulars	Amount($)
Direct Materials	25480
Direct Labor	32800
Manf. OH	24346
Total Manufacturing costs	82626