4. Job Costing

Hanif KanjerDean, Rustomjee Business School

Index

• Overheads are to be allocated• Cost-allocation base• Actual Costing• Normal Costing (computed using Budgeted

overhead rate)• Under-allocation, Over-allocation

Actual Costing, Normal Costing, accounting for manufacturing overhead

   Amount in $

  Budget for 2009

Actual Results for 2009

aDirect Material Costs         2,150,000            2,000,000 bDirect Manufacturing labor costs         1,450,000            1,400,000 cManufacturing Overhead Costs         2,755,000            2,800,000 

dManufacturing Overhead rate (=c/b) 1.9 2.0

2. During March, the job cost record for Job 195: Compute total costs.

NORMAL COSTING

ACTUAL COSTING

e  Direct Materials used  50,000  50,000 f  Direct Manufacturing labor Costs  40,000  40,000 

 Manufacturing Overhead Costs               76,000            80,000 Total Costs 166,000 170,000

UNDER ALLOCATION              4,000 

There is under allocation as budgeted overhead is $166,000 and actual overhead is $1,70,000, so under allocated by $4,000

Cost Allocation base :

Direct Manufacturing Labor Costs

E.g. 4-17, Pg 151

Manufacturing Overhead costs = Mfg OH rate* direct mfg labor costs

Job Costing, Normal Costing, actual Costing

Cost Allocation Base Direct Labor hoursComputation of Overhead Rate Actual Costing Normal Costing

a. Assembly Support Costs 6,888,000  8,000,000 

b. Direct Labor hours 164,000  160,000 c1. Assembly Support Costs Overhead Ratec2

4250

E.g. 4-18, Pg 151

Actual Costing Normal CostingLaguna Model Mission Model Laguna Model Mission Model

Construction Period Feb-June 2008 May-Oct 2008 Feb-June 2008 May-Oct 2008

d1. Direct Labor Hoursd2

9001010

9001010

e.  Direct Material Costs                  106,450 

             127,640 

             106,450 

               127,640 

f.  Direct Labor Costs                    36,276 

               41,410 

               36,276 

                 41,410 

g.  Assembly Support Costs 37,800 42,420 45000 50500(c1*d1) (c1*d2 (c2*d1) (c2*d2)

Total Costs            180,526             211,470             187,726            219,550 

1

2

Manufacturing costs of a job are available much earlier under a normal-costing system.

So, managers can evaluate the profitability of different jobs, the efficiency with which the jobs are done, and the pricing of the jobs are soon as the jobs are completed, while the experience is still fresh in everyone’s mind.

Another advantage of normal costing is that corrective actions can be implemented much sooner.

At the end of the year, though, the costs allocated using normal costing will not, in general, equal the actual costs incurred. 

3

E.g. 4-18, Pg 151

Job Costing, Normal Costing, actual Costing

2  BUDGETED MANUFACTURING OVERHEAD   Machining Department 

 Finishing Department 

A Manufacturing Overhead 12,000,000

10,000,000

B  Direct Manufacturing Labor Costs                                1,000,000 

                           5,000,000 

C  Direct Manufacturing Labor-Hours                                      40,000 

                              200,000 

D  Machine Hours                                   250,000 

                                 55,000 

E.g. 4-31, Pg 157

E BUDGETED MANUFACTURING OVERHEAD 48 2

3  Month of January, job cost record, Job 289  Machining Dept.  Finishing Dept.

F  Direct Materials used  15,000  4,000 G  Direct Manufacturing Labor Costs  650  1,400 H  Direct Manufacturing Labor-Hours  35  60 I  Machine Hours  140  15 

J  TOTAL MANUFACTURING OVERHEAD COSTS  6,720  2,800  9,520

(E*I) (E*G)

Job Costing, accounting for Mfg Overhead, budgeted rates

 Q4, Cost/unit, if Job 289 consisted of 100 units of product

 Machining Department 

 Finishing Department 

 Direct Materials used  15,000                              4,000  Direct Manufacturing Labor Costs  650                              1,400  Manufacturing Overheads  6,720                              2,800  Total costs  22,370                              8,200  Cost/unit  223.70                              82.00      305.70 

E.g. 4-31, Pg 157 Job Costing, accounting for Mfg Overhead, budgeted rates

Q5. Compute over/underallocated MFG OH  Machining Department   Finishing Department 

f  Actual Manufacturing Overheads                             13,400,000                            9,800,000 

g  Actual Machine Hours  270,000                                  54,000 

h  Actual Direct Manufacturing Labor Costs                                1,100,000                            4,300,000 

e BUDGETED MANUFACTURING OVERHEAD 48

2

 Thus, (e-i)  -1.63  -0.28  Budgeted less than allocated   Under allocation   Under allocation 

i  Actual Manufacturing Overhead rate  49.63                                      2.28 

E.g. 4-31, Pg 157 Job Costing, accounting for Mfg Overhead, budgeted rates