Question

Destin Products uses a job-costinf system with two direct cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool Destin allocates manufacturing overhead costs using direct manufacturing labor costs. Destin proves the following information in the photo
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overhead rates for 2017. (Enter your answer as a number (not as a percentage] rounded to two decimal places, X.XX.) i Data Table - X Direct material costs Direct manufacturing labor costs Manufacturing overhead costs Budget for 2017 Actual Results for 2017 2,100,000 $ 1.975,000 1,800,000 1,725,000 3,330,000 3,363,750 Print Done

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                         $40,000
        Direct manufacturing labor costs $35,000
Compute the cost of Job 626 using a) actual costing and b) normal costing
3. At the end of 2017, compute the under or over allocated manufacturing overhead under normal costing. Why is there no under or over allocated under actual costing?
4. Why might managers at Destin Products prefer to use normal costing?

                                                        

Answer 1

Solution:

1. Actual manufacturing overhead rate = Actual manufacturing OH / Actual direct manufacturing labor cost

= $3,363,750 / 1,725,000 = $1.95

Budgeted manufacturing OH rate = Budgeted manufacturing OH / Budgeted direct mfg. labor cost

= $3,330,000 / 1,800,000 = $1.85

2. Computation of cost of Job 626 :

a. Under actual costing, cost of job 626 = Direct material + direct labor + allocated mfg. OH

= $40,000 + 35,000 + $35,000×$1.95

= $143,250

b. Under normal costing, cost of job 626 = $40,000 + 35,000 + $35,000×$1.85

   = $139,750

3. Under allocated manufacturing OH under normal costing = Actual OH - allocated OH

= $35,000×$1.95 - $35,000×$1.85

= $3,500 (under allocated)

There is no under or over allocation under actual costing because, here actual OH cost is applied to jobs which results no variation from actual cost incurred and balance in OH account gets zero automatically.

4. Managers prefer normal costing because as soon the jobs completed, they have to charge the costs to it (they cannot wait until the actual bills of expenses received). So, based on predetermined rate, manufacturing OH is allocated and total cost of jobs are determined.