Gamma Ltd is a small manufacturing business. Direct materials and direct labour are the only costs that can be traced directly to jobs. All other manufacturing costs are allocated using an overhead rate based on direct labour cost. The company calculates the selling price for each job by adding 25% to the total manufacturing costs. Annual Budget Forecast Direct Materials $4,500 Direct Labour $4,000 Variable Overheads $2,400 Administration expenses $1,500 Insurance $2,000 Advertising for the business $4,000 Depreciation of machinery $1,200 Job number 22-5 is completed during this month. It incurred the following direct costs: Direct materials $75 Direct labour $60 Required: (a) Calculate the estimated total manufacturing overhead cost for the year.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Gamma Ltd is a small manufacturing business.
Direct materials and direct labour are the only costs that can be traced directly to jobs.
All other
The company calculates the selling price for each job by adding 25% to the total manufacturing costs.
|
Annual Budget |
|
|
Direct Materials |
$4,500 |
|
Direct Labour |
$4,000 |
|
Variable |
$2,400 |
|
Administration expenses |
$1,500 |
|
Insurance |
$2,000 |
|
Advertising for the business |
$4,000 |
|
|
$1,200 |
Job number 22-5 is completed during this month. It incurred the following direct costs:
|
Direct materials |
$75 |
|
Direct labour |
$60 |
Required:
(a) Calculate the estimated total manufacturing overhead cost for the year.
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