Textbook Problem

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Chester Company provided information on overhead for its three producing departments as follows:

Overhead is applied on the basis of machine hours in Fabricating and direct labor hours in Assembly and in Finishing.

Job #13-198 had total prime cost of $6,700. The job took 40 machine hours in Fabricating, 100 direct labor hours in Assembly, and 20 direct labor hours in Finishing. What is the total cost of Job# 13-198?

1. a. $6,700.00
2. b. $1,523.20
3. c. $8,223.20
4. d. $7,383.20

To determine

Calculate the total cost of job #13-198.

Explanation of Solution

Producing departments: Producing department is directly answerable for creating the product and services that are sold to customers. For examples, management advisory services, tax and auditing are producing departments in a large public accounting firm.

Job order costing: Job order costing is one of the methods of cost accounting under which cost is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products produced are significantly different from each other.

Compute the total cost of job #13-198:

Particulars	Amount	Amount
Prime cost		$6,700
Overhead allocation from
Fabricating	(4)$280
Assembly	(5)$320
Finishing	(6) $83.20	$683.20
Total cost of Job #13-198		$7,383.20

Table (1)

Therefore, according to the above calculation option d. $7,383.20 is the correct option and the other options if a, b and c is incorrect.

Working notes:

(1)Calculate the fabricating overhead rate:

$\begin{array}{c}\text{Fabricating}\text{overhead}\text{rate =}\frac{\text{Budgeted}\text{overhead}}{\text{Budgeted}\text{machine}\text{hours}}\\ \text{=}\frac{\text{\$140,000}}{\text{20,000}\text{hours}}\\ \text{=}\text{\$7}\text{per}\text{machine}\text{hour}\end{array}$

(2)Calculate the assembly overhead rate:

$\begin{array}{c}\text{Assembly}\text{overhead}\text{rate =}\frac{\text{Budgeted}\text{overhead}}{\text{Budgeted}\text{direct}\text{labor}\text{hours}}\\ \text{=}\frac{\text{\$64,000}}{\text{20,000}\text{hours}}\\ \text{=}\text{\$3}\text{.20}\text{per}\text{direct}\text{labor}\text{hour}\end{array}$

(3)Calculate the finishing overhead rate:

$\begin{array}{c}\text{Finishing}\text{overhead}\text{rate =}\frac{\text{Budgeted}\text{overhead}}{\text{Budgeted}\text{direct}\text{labor}\text{hours}}\\ \text{=}\frac{\text{\$74,880}}{\text{18,000}\text{hours}}\\ \text{=}\text{\$4}\end{array}$