So Chan 4.pdf - MAGIS ACADEMIC MENTORS 4-22 Actual costing normal costing accounting for manufacturing overhead Dakota Products uses a jobcosting system

So Chan 4.pdf - MAGIS ACADEMIC MENTORS 4-22 Actual costing...

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4-1 MAGIS ACADEMIC MENTORS 4-22 Actual costing, normal costing, accounting for manufacturing overhead. Dakota Products uses a job-costing system with two direct-cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Dakota allocates manufacturing overhead costs using direct manufacturing labor costs. Dakota provides the following information: Required: 1. Compute the actual and budgeted manufacturing overhead rates for 2017. 2. During March, the job-cost record for Job 626 contained the following information: Direct materials used $55,000 Direct manufacturing labor costs $45,000 Compute the cost of Job 626 using (a) actual costing and (b) normal costing. 3.At the end of 2017, compute the under- or overallocated manufacturing overhead under normal costing. Why is there no under- or overallocated manufacturing overhead under actual costing? 4.Why might managers at Dakota Products prefer to use normal costing? =
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4-2 MAGIS ACADEMIC MENTORS 2. Costs of Job 626 under actual and normal costing follow: Actual Normal Costing CostingDirect materials $ 55,000 $ 55,000 Direct manufacturing labor costs 45,000 45,000 Manufacturing overhead costs $45,000 ´1.95; $45,000 ´1.80 87,750 81,000 Total manufacturing costs of Job 626 $187,750 $181,000 3. = = $1,650,000 ´1.80 = $2,970,000 = = $3,217,500 -$2,970,000 = $247,500 There is no under- or overallocated overhead under actual costing because overhead is allocated under actual costing by multiplying actual manufacturing labor costs and the actual manufacturing overhead rate. This, of course, equals the actual manufacturing overhead costs. All actual overhead costs are allocated to products. Hence, there is no under- or overallocated overhead. 4. Managers at Dakota Products might prefer to use normal costing because it enables them to use the budgeted manufacturing overhead rate determined at the beginning of the year to estimate the cost of a job as soon as the job is completed. Managers want to know 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, managers would only determine the cost of a job at the end of the year when they know actual manufacturing overhead costs. 4-28 Accounting for manufacturing overhead. Creative Woodworking uses normal costing and allocates manufacturing overhead to jobs based on a budgeted labor-hour rate and actual direct labor-hours. Under or overallocated overhead, if immaterial, is written off to Cost of Goods Sold. During 2017, Creative recorded the following: Required: 1. Compute the budgeted manufacturing overhead rate. 2. Prepare the summary journal entry to record the allocation of manufacturing overhead. 3. ´
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