1 budgeted manufacturing overhead rate budgeted

1. Budgeted manufacturing overhead rate =
Budgeted manufacturing overhead
Budgeted machine hours
=
$2,850,000
190,000 machine-hours
= $15/machine-hour
2. Manufacturing overhead allocated = Actual machine-hours × Budgeted manufacturing
overhead rate = 195,000 × $15 = $2,925,000
3. Since manufacturing overhead allocated is greater than the actual manufacturing overhead
costs, Waheed overallocated manufacturing overhead:
Manufacturing overhead allocated $2,925,000
Actual manufacturing overhead costs 2,910,000
Overallocated manufacturing overhead $ 15,000

4-7
4-20 (20-30 min.) Job costing, accounting for manufacturing overhead, budgeted rates.
1. An overview of the product costing system is
COST OBJECT:
PRODUCT
COST
ALLOCATION
BASE
DIRECT
COST
Machining Department
Manufacturing Overhead
Machine-Hours
Direct
Materials
INDIRECT
COST
POOL
Direct
Manufacturing
Labor
Indirect Costs
Direct Costs
Assembly Department
Manufacturing Overhead
Direct Manuf.
Labor Cost
Budgeted manufacturing overhead divided by allocation base:
Machining overhead
000 , 50
000 , 800 , 1 $
= $36 per machine-hour
Assembly overhead:
000 , 000 , 2 $
000 , 600 , 3 $
= 180% of direct manuf. labor costs
2. Machining department, 2,000 hours $36 $72,000
Assembly department, 180% $15,000 27,000
Total manufacturing overhead allocated to Job 494 $99,000
3. Machining Assembly
Actual manufacturing overhead $2,100,000 $ 3,700,000
Manufacturing overhead allocated,
55,000 $36 1,980,000 —
180% $2,200,000 — 3,960,000
Underallocated (Overallocated) $ 120,000 $ (260,000 )

4-8
4-21 (20 25 min.) Job costing, consulting firm.
1. Budgeted indirect-cost rate = $13,000,000 ÷ $5,000,000 = 260% of professional labor costs
2. At the budgeted revenues of $20,000,000, Taylor’s operating income of $2,000,000
equals 10% of revenues.
Markup rate = $20,000,000 ÷ $5,000,000 = 400% of direct professional labor costs
COST
ALLOCATION
BASE
Consulting
Support
COST OBJECT:
JOB FOR
CONSULTING
CLIENT
DIRECT
COSTS
Indirect Costs
Direct Costs
INDIRECT
COST
POOL
Professional
Labor Costs
Professional
Labor Costs
Professional
Labor

4-9
3. Budgeted costs
Direct costs:
Director, $200 3 $ 600
Partner, $100 16 1,600
Associate, $50 40 2,000
Assistant, $30 160 4,800 $ 9,000
Indirect costs:
Consulting support, 260% $9,000 23,400
Total costs $32,400
As calculated in requirement 2, the bid price to earn a 10% income-to-revenue margin is 400%
of direct professional costs. Therefore, Taylor should bid 4 $9,000 = $36,000 for the Red
Rooster job.
Bid price to earn target operating income-to-revenue margin of 10% can also be
calculated as follows:
Let R = revenue to earn target income
R – 0.10R = $32,400
0.90R = $32,400
R = $32,400 ÷ 0.90 = $36,000
or, Direct costs $ 9,000
Indirect costs 23,400
Profit (0.40 9,000) 3,600
Bid price $36,000

4-10
4-22 (15 – 20 min.) Service industry, time period used to compute indirect cost rates.
1.
Jan – March April – June July – Sept Oct – Dec Total
Direct labor costs $400,000 $280,000 $250,000 $270,000 $1,200,000
Variable costs as
percentage of direct labor
costs 90 % 60 % 60 % 60 %
Variable overhead costs
(Percentage direct
labor costs) $360,000 $168,000 $150,000 $162,000 $ 840,000
Fixed overhead costs 300,000 300,000 300,000 300,000 1,200,000
Total overhead costs $660,000 $468,000 $450,000 $462,000 $2,040,000
Total overhead costs as a
percentage of direct labor
costs 165% 167% 180% 171% 170%
Budgeted Overhead Rate Used
Job 332
Jan – March
Rate
July – Sept
Rate
Average
Yearly Rate
Direct materials $10,000 $10,000 $10,000
Direct labor costs 6,000 6,000 6,000
Overhead allocated (variable + fixed)
(165%; 180%; 170% of $6,000) 9,900 10,800 10,200
Full cost of Job 332 $25,900 $26,800 $26,200
(a)