Acubra Ltd uses a job-costing system at its Perth plant. The plant has a Machini

Question

Acubra Ltd uses a job-costing system at its Perth plant. The plant has a Machining Department and an Assembly Department. Its job-costing system has two direct cost categories (direct materials and direct manufacturing labour) and two manufacturing overhead cost pools (the Machining Department overhead, allocated to jobs based on actual machine-hours, and the Assembly Department overhead allocated to jobs based on actual direct manufacturing labour costs). The 2017 budget for the plant is: Machining Assembly Manufacturing overhead Direct Manufacturing Labour costs Direct Manufacturing Labour hours Machine hours Department Department $1,900,000 $3,000,000 $1,400,000 $2,000,000 200,000 200,000 100,000 50,000 Required (1) During February, the job-cost record for job 501 contained the following Machining Assembly Direct materials used Direct Manufacturing Labour costs Direct Manufacturing Labour hours Machine hours Department Department $45,00070,000 $14,00015,000 1,500 1,000 1,000 2,000 Calculate the total costs of job 501 (2) At the end of 2017, the actual manufacturing overhead costs were $2 100 000 in Machining and 3 700 000 in Assembly. Assume that 55 000 actual machine-hours were used in the Machining Department and that actual direct manufacturing labour costs in the Assembly Department were $220 0000. Calculate the total over-or under-allocated manufacturing overhead.

Explanation / Answer

Machine department overhead rate = Machine department overheads/Number of machine hours

= 1,900,000/50,000

= $38 per machine hour

Assembly department overhead rate = Assembly department overheads/Number of labor hours

= 3,000,000/200,000

= $15 per direct labor hour

(1) Calculation of cost of job 501

Total cost of job 501 = $242,500

(2)

Actual machine department overhead cost = $2,100,000

Actual machine hours = 55,000

Machine department overhead rate = $38 per machine hour

Allocated machine department overhead = Actual machine hours x Machine department overhead rate

= 55,000 x 38

= $2,090,000

Hence, under applied machine department overhad = Actual machine department overhead - Allocated machine department overhead

= 2,100,000 - 2,090,000

= $10,000

Actual assembly department overhead cost = $3,700,000

Actual labor hours = 55,000

Assembly department overhead rate = $15 per labor hour

For budgeted 200,000 labor hours, budgeted labor cost is $2,000,000.

Hence, budgeted labor cost per hour = 2,000,000/200,000

= $10

If actual labor cost is $2,200,000, thenactual labor hours must be = 2,200,000/10

= 220,000

Allocated assembly department overhead = Actual labor hours x Assembly department overhead rate

= 220,000 x 15

= $3,300,000

Hence, under applied assembly department overhad = Actual assembly department overhead - Allocated assembly department overhead

= 3,700,000 - 3,300,000

= $400,000

Total under applied manufacturing overhead = under applied machine department overhead + under applied assembly department overhead

= 10,000 + 400,000

= $410,000

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Machining department Assembly department Total Direct material cost 45,000 70,000 115,000 Direct labor cost 14,000 15,000 29,000 Machining department overhead 2,000 x 38 = 76,000 76,000 Assembly department overhead 1,500 x 15 = 22,500 22,500 Total 242,500

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