Job A requires $5,600 of direct material and $3,500 of Direct Labor to produce. We use 100 direct labor hours to produce Job A. Job A requires 4 machine setups and 20 testing hours.
We estimate manufacturing overhead to be $1,020,000 for the next year and we expect to have 40,000 direct labor hours used in our manufacturing plant.
Currently we use Traditional Costing for costing our products.
Ans:
In case of Traditional Costing method, Overhead are applied to a job based on number of direct labor hours required for the Job.
1.
Calculation of perdetermined overhead rate:
Manufacturing overhead/ Total direct labor hours = $1,020,000/40,000 = $25.50
2.
Amount of overhead should be applied to Job A using Traditional Costing:
Direct Labor Hours * Overhead rate per hour = 100 * $25.50 = $2,550
3.
Total product cost of Job A using Traditional Costing:
Direct Material : $5,600
Direct Labor cost : $3,500
Applied manufacturing overhead : $2,550
Total Cost = $5600 + $3500 + $2550 = $11,650
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