Tutorial 5 – Job & Batch Costing

1. Job No.909 was completed in three departments of a factory. Costs details for this job
were:

Department Direct Direct Direct

materials wages Labour hours
RM RM
X 650 800 1,000
Y 940 300 400
Z 230 665 700

The production overheads are absorbed into the jobs using predetermined
departmental overhead absorption rates based on the direct labour hours. The
administrative overhead is absorbed as a percentage of production cost.

The figures for the last cost period for the three departments on which the current
overhead recovery rates(OAR) are base were:

Department X Y Z
Direct materials (RM) 6,125 11,360 25,780
Direct wages (RM) 9,375 23,400 54,400
Direct labour hours 12,500 36,000 64,000
Production overheads (RM) 5,000 7,200 9,600
Administrative overheads (RM) 2,870 14,686 8,978

You are required to prepare a cost card showing the cost of Job No.909 and to show
the price charged, assuming a profit margin of 20%.

Working:

Departmental OAR

Department X Y Z
(w1) OAR RM5000 /12,500 RM7,200 / 36,000 RM9,600 / 64,000
– Production overheads =0.4 per labour =0.2 per labour =0.15 per labour
=Budgeted production hour hour hour
overhead / Budgeted
Labour hour
(w2) OAR RM2,870 / 20,500 RM14,686/41,960 RM8,978 / 89,780
–Administrative overheads X100 X 100 X100%
=Budgeted Administrative = 14 % of =35% of =10 % of
overhead / Budgeted production cost production cost production cost
Production cost

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 Job No.909

Department X Y Z Total
RM RM RM RM
Direct materials 650 940 230 1820
Direct wages 800 300 665 1765
Production overheads (w1) 0.4 x 1000 0.2 x400 0.15 x700 585
=400 =80 =105
Production cost 1,850 1,320 1,000 4,170
14% x 1850 35 % x 1320 10% x 1000 821
Administrative overheads =259 =462 =100
(w2)

Total cost 4,991

Profit(4991 x 20% / 80 %) 1,247.75
Sales(4991 /80%) 6,238.75

2. High Desert Potteryworks makes a variety of pottery products that it sells to retailers.
The company uses a job-order costing system in which predetermined overhead rates
are used to apply manufacturing overhead cost to jobs. The predetermined overhead
rate in the Moulding Department is based on machine hours, and the rate in the
Painting Department is based on direct labour cost. At the beginning of the year, the
company‟s management made the following estimates:

Department
Moulding Painting
Direct labour hours 12,000 60,000
Machine hours 70,000 8,000
Direct material cost (in RM) 510,000 650,000
Direct labour cost (in RM) 130,000 420,000
Manufacturing overhead cost in (RM) 602,000 735,000

Job 205 was started on August 1 and completed on August 18. The company cost
records show the following information concerning the job:

Department Moulding Painting

Direct labour hours 30 85
Machine hours 110 20
Direct material issued (in RM) 470 332
Direct labour Cost (in RM) 290 680

Required:
(a) Compute the predetermined overhead rates used during the year in Moulding
Department and Painting Department.
(b) Compute the total overhead cost applied to Job 205.
(c) What would be the total manufacturing cost recorded for Job 205?

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 (d) At the end of the year, the records of the company revealed the following actual
cost and the operating data for all jobs worked on during the year:

Department Moulding Painting

Direct labour hours 10,000 62,000
Machine hours 65,000 9,000
Direct material issued (in RM) 430,000 680,000
Direct labour Cost (in RM) 108,000 436,000
Manufacturing overhead cost (in RM) 570,000 750,000

What was the amount of under/over absorbed overhead in each department at the
end of the year?

(a) Departmental OAR

Moulding Painting
OAR = Budgeted Manufacturing OHs Budgeted Manufacturing OHs x 100%
Budgeted Machine Hours Budgeted Direct Labour Cost
RM602,000 /70,000 RM735,500/420,000 X100%
=RM 8.60 per machine hours =175% of direct labour cost

(b) Job 205 :

Department Moulding Painting Total

Manufacturing RM8.60 X 110 175% X680 RM2136
overheads cost =RM946 =RM1190
applied/absorbed

(c) Job No.205

Department Moulding Painting Total
RM RM RM
Direct materials 470 332 802
Direct labour 290 680 970
Manufacturing overheads 946 1,190 2136
Production cost/Total cost 1,706 2,202 3,908

(d) Under/(over) absorption of overheads

Department Moulding Painting Total

RM RM RM
Actual overheads 570,000 750,000 1,320,000
Overheads absorbed RM8.60 X 65,000 175% X 436,000 1,322,000
=RM559,000 =RM763,000
Under/(over) absorbed 11,000 (13,000) (2,000)

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 3. Cee Sdn Bhd has three production departments. It has been using a single production
overhead absorption rate, expressed as a percentage of direct wages for many years.
In recent years, it has invested heavily in machinery especially for Department A. The
managing director has learned that departmental absorption rates would result in more
accurate job costs. He seeks your opinion to calculate an overhead absorption rate for
each department.

The following are the budgeted and actual data for December 20X7:
Department Direct Direct Machine Production
Wages labour hours hours overhead cost
RM RM
Budget:
Department: A 10,000 4,000 20,000 100,000
B 40,000 20,000(take 5,000 28,000
highest)
C 20,000 20,000 - 12,000
70,000 140,000
Actual:
Department: A 12,000 4,100 19,000 110,000
B 46,000 22,000 4,800 24,000
C 18,000 19,000 - 13,000
76,000 147,000

Required:
(a) Calculate the current production overhead absorption rate.
(b) Calculate an appropriate overhead absorption rate for EACH of the departments
and briefly explain the reason(s) for your choice of the absorption basis.

(c) During December 20X7, one of the jobs, Job P007 incurred the following costs
and hours in the department:
Direct Direct Direct Machine
Materials Wages Labour Hours
RM RM Hours
Department: A 400 66 22 100
B 110 160 80 25
C 50 25 25 -

The company uses a mark up of 25% as gross profit.

(i) Calculate the production cost and gross profit for Job P007 using the
current absorption rate.
(ii) Calculate the production cost and gross profit for Job P007 using the
departmental overhead absorption rate calculated in part (b).

(d) Calculate the under/over absorption for EACH of the departments for the period
using the current absorption rate.

(e) Calculate the under/over absorption for EACH of the departments for the period
using the departments for the period using the departmental overhead
absorption rates calculated in part (b).

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 (a) Blanket OAR = Total Budgeted Production Overheads x 100 =

Total Budgeted Direct Wages

=140,000/70,000 X100
= 200% of direct wages
(b) Departmental OAR

A B C
OAR = Budgeted Prod. OHs Budgeted Prod. OHs Budgeted Prod. OHs
Budgeted Machine Hours Budgeted Labour Hours Budgeted Labour Hours
RM100,000/20,000 RM28,000/20,000 RM12,000/20,000
=RM5 per machine hours = RM1.4 per labour hours =RM0.6 per labour
hours

Department A is a capital intensive department, thus machine hours will be more

appropriate than labour hours.

Department B and C are labour intensive departments, thus labour hours will be
more appropriate than machine hours.

(c) Job No.007

(i) Using the blanket absorption rate:

Department A B C Total
RM RM RM RM
Direct Material 400 110 50 560
Direct Wages 66 160 25 251
Production overheads 200% x66 200% x 160 200% x 25 502
(OAR x Actual machine =132 =320 =50
hours
Production cost 598 590 125 1,313
Gross profit(1313 x 25%) 328.25
Selling price(1313 x 125%) 1641.25

(ii) Using the departmental absorption rate:

Department A B C Total
RM RM RM RM
Direct Material 400 110 50 560
Direct Wages 66 160 25 251
Production overheads RM5 X 100 RM1.4 x80 RM0.6 x 25 627
=500 =112 =15
Production cost 966 382 90 1,438
Gross profit(1438 x 25%) 359.5
Selling price(1438 x 125%) 1797.5

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 (d) Under/(over) absorption of overheads: (Using the blanket absorption rate)

Department A B C Total
RM RM RM RM
Actual overheads 110,000 24,000 13,000 147,000

Overheads absorbed 200% x 12,000 200% x 46,000 200% x 18,000 152,000

(OAR x Actual direct =24,000 =92,000 =36,000
wages)
Under/(over) absorbed 86,,000 (68,000) (23,000) (5,000)

(e) Under/(over) absorption of overheads: (Using the departmental absorption rate)

Department A B C Total
RM RM RM RM
Actual overheads 110,000 24,000 13,000 147,000

Overheads absorbed RM5 X 19,000 RM1.4 RM0.6 X 137,200

(OAR x Actual direct =95,000 X22,000 19,000
wages) =30,800 =11,400
Under/(over) absorbed 15,000 (6,800) 1,600 9,800

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