Job costing accounting for manufacturing overhead

4-25 Job costing, accounting for manufacturing overhead, budgeted rates. The Matthew
Company uses a normal job-costing system at its Minneapolis plant. The plant has a machining
department and an assembly department. Its job-costing system has two direct-cost categories
(direct materials and direct manufacturing labor) and two manufacturing overhead cost pools (the
machining department overhead, allocated to jobs based on actual machine-hours, and the
assembly department overhead, allocated to jobs based on actual direct manufacturing labor
costs). The 2017 budget for the plant is as follows:
Required:
1. Present an overview diagram of Matthew’s job-costing system. Compute the budgeted
manufacturing overhead rate for each department.
2. During February, the job-cost record for Job 494 contained the following:
Compute the total manufacturing overhead costs allocated to Job 494.
3. At the end of 2017, the actual manufacturing overhead costs were $1,800,000 in machining
and $5,300,000 in assembly. Assume that 33,000 actual machine-hours were used in
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machining and that actual direct manufacturing labor costs in assembly were $3,200,000.
Compute the over or underallocated manufacturing overhead for each department.
SOLUTION
(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 the budgeted quantity of the allocation base:
Machining Department overhead:
$1,500,000
30,000
= $50 per machine-hour
Assembly Department overhead:
$5,100,000
$3,000,000
= 170% of direct manuf. labor costs
2. Machining department overhead allocated, 2,800 hours  $50 $140,000
Assembly department overhead allocated, 170%  $19,000 32 ,300
Total manufacturing overhead allocated to Job 494 $172 ,300
3. Machining Dept. Assembly Dept.
Actual manufacturing overhead $1,800,000 $ 5,300,000
Manufacturing overhead allocated,
$50  33,000 machine-hours 1,650,000 —
170%  $3,200,000 — 5 ,440,000
Underallocated (Overallocated) $ 150 ,000 $ (140 ,000 )
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4-26 Job costing, consulting firm. Frontier Partners, a management consulting firm, has the
following condensed budget for 2017:
Frontier has a single direct-cost category (professional labor) and a single indirect-cost pool
(client support). Indirect costs are allocated to jobs on the basis of professional labor costs.
Required:
1. Prepare an overview diagram of the job-costing system. Calculate the 2017 budgeted
indirect-cost rate for Frontier Partners.
2. The markup rate for pricing jobs is intended to produce operating income equal to 10% of
revenues. Calculate the markup rate as a percentage of professional labor costs.
3. Frontier is bidding on a consulting job for Sentinel Communications, a wireless
communications company. The budgeted breakdown of professional labor on the job is as
follows:
Calculate the budgeted cost of the Sentinel Communications job. How much will Frontier bid for
the job if it is to earn its target operating income of 10% of revenues?
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