Alfa Corporation uses a job cost system and has two production departments, A an

ID: 2461256 • Letter: A

Question

Alfa Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the years are: Department A Department B Direct materials $850,000 $250,000 Direct manufacturing labor $200,000 $900,000 Manufacturing overhead $550,000 $450,000 The actual material and labor costs charged to Job #432 were as follows: Total Direct materials: $25,000 Direct labor: Department A $12,000 Department B $10,000 $22,000 Alfa applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year. Proportion of manufacturing overhead with respect to the total cost of the job is ________.

Explanation / Answer

Solution:

Calculation of Total Cost of Job # 432

Amount $

Total Direct materials

$25,000

Direct labor

Department A

$12,000

Department B

$10,000

$22,000

Manufacturing overhead (refer note 1)

Department A ($12,000 x $2.75)

33000

Department B ($10,000 x $0.50)

500

$33,500

Total Cost of Job # 432

$80,500

Proportion of manufacturing overhead with respect to the total cost of the job is = Total Manufacturing Overheads / Total Cost of Job # 432 = $33,500 / $80,500 = 0.4161

Working Note 1: Calculation of Department Manufacturing Overhead Rate

Department A

Department B

Direct Materials

$850,000

$250,000

Direct manufacturing labor

$200,000

$900,000

Manufacturing overhead

$550,000

$450,000

Departmental Manufacturing Overhead Rate (Manufacturing Overhead / Direct Manufacturing Labor)

$2.75

$0.50