Q 1 Job Costing        You

   Q 1 Job Costing

       You have the informationrelated to Nasser Compagny:

                                                   Direct             Direct               Direct

                                                 Materials       LaborCost      Labor Hours

Job200              $200               $800                   40

Job201                250                 200                   10

Job202                500                 600                   32

Nasser Compagny uses job costing and applies overhead using anormal costing system using direct labor hours as the allocationbase.

The estimated overhead cost is $400,000, estimated direct laborcost is $500,000 and estimated direct labor hours are 25,000.

The actual overhead cost was $420,000, actual direct labor costwas $390,000, and actual direct labor hours were 20,000.

What is the overhead allocation rate?

What is the total manufacturing cost of Job200?

Discuss when Job costing is used and the process ofallocating cost using job costing.

Answer:

Overhead Allocation Rate – Estimated Overhead Cost / DirectLabour Hours

                                         – 400,000 / 25000

Overhead Allocation Rate – 16/Hour

Calculation of Manufacturing Cost for Job200

Job 200, Cost Sheet

DirectMaterial               200

DirectLabour                 800

DirectOverhead           640   (Overhead rate x Direct labour hours)

Total Cost ofJob          1640

Job costing is used by companies who manufacture customisedproducts or when each product is different from each other. Inthese cases cost of the product has to be determined individually.For this purpose direct costs are assigened to each job. This helpsto track the direct costs like material and labour used for thatparticular product. A predetermined over head rate is applied forindirect expenses by the management to cover the indirect cost.This is because, the indirect expenses will be known only at theend of the period. A job cost sheet is prepared to consolidate thecost of each product/job.


 
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