Question

Question text

Kerin Company produces a range of Biomedical products for industries. It uses a job-costing system to calculate the cost of a particular job. Materials and labors used in the manufacturing process are direct in nature, but manufacturing overhead is allocated to different jobs using direct manufacturing labor costs. Kerin provides the following information:

	Budget for 2019	Actual Results for 2019
Direct material costs	$ 5,500,000	$6,000,000
Direct manufacturing labor costs	3,660,000	4,500,000
Manufacturing overhead costs	6,588,000	7,560,000

Required:

1.      Compute the actual and budgeted manufacturing overhead rates for 2019.

2.      During March, the job-cost records for Job 666 contained the following information:

Direct materials used                                      $147,000

Direct manufacturing labor costs                    $102,000

Compute the cost of Job 666 using normal costing.

3.      At the end of 2019, compute the under-allocated or over-allocated manufacturing overhead using normal costing.

Answer 1

1.

Budgeted Rate=
$6,588,000/$3,660,000= $1.80/dollar of labor cost

Actual Rate=
$7,560,000/$4,500,000= $1.68/dollar of labor cost

2.

Normal Costing (only difference is you take budgeted rate multiplied by the actual labor costs):

$6,588,000/$3,660,000= $1.80/dollar of labor cost

DM=$1,47,000
DL=$1,02.000
FOH=($1,02,000x$1.80)=$1,83,600

Total= $ 4,32,600

3.

Cr. for Applied Overhead ($1.80x$4,500,000)=$8,100,000

Db. for Actual Incurred (given)=$7,560,000

Result: Cr. balance of $540, 000 (Over applied FOH)