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Manufacturing Overhead in Job Costing

This document discusses a predetermined manufacturing overhead rate used in job-order costing and calculating overhead allocation for a print shop. It provides information on budgeted overhead costs, expected unit volumes and product costs. It then asks questions about computing the predetermined overhead rate, product costs using that rate, expected overhead allocation amounts and percentages for each product category, and potential business problems that may arise from the current overhead allocation method.

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Chandria Ford
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18 views2 pages

Manufacturing Overhead in Job Costing

This document discusses a predetermined manufacturing overhead rate used in job-order costing and calculating overhead allocation for a print shop. It provides information on budgeted overhead costs, expected unit volumes and product costs. It then asks questions about computing the predetermined overhead rate, product costs using that rate, expected overhead allocation amounts and percentages for each product category, and potential business problems that may arise from the current overhead allocation method.

Uploaded by

Chandria Ford
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Case Problems

1. Define and explain the meaning of a predetermined manufacturing overhead rate that is applied
in a job-order costing system.
2. What are the advantages and disadvantages of using the cost of each print as a manufacturing
overhead cost driver?
3. Using the information on the next page, compute and interpret the predetermined
manufacturing overhead rate for Wall Décor.

Unframed Steel-Framed Print, Wood-Framed Print,


Print No Matting With Matting
Volume – expected 80,000 15,000 7,000
units sold
Cost Elements
Direct Materials
Print (expected $12 $16 $20
average cost for each
of the three categories
Frame and Glass $4 $6
Matting $4
Direct Labor
Picking time 10 minutes 10 minutes 10 minutes
Picking labor rate/hour $12 $12 $12
Matting and framing 20 minutes 30 minutes
time
Matting and framing $21 $21
rate/hour

Manufacturing Overhead Budget


Supervisory salaries $100,000
Factory rent 130,200
Equipment rent (framing and matting equipment) 50,000
Utilities 20,000
Insurance 10,000
Information technology 50,000
Building maintenance 11,000
Equipment maintenance 4,000
Budgeted total manufacturing overhead costs $375,200

4. Compute the product cost for the following three items.


(a) Lance Armstrong unframed print (base cost of print $12).
(b) John Elway print in steel frame no mat (base cost of print $16).
(c) Lambeau Field print in wood frame with mat (base cost of print $20).
5. (a) How much of the total overhead cost is expected to be allocated to unframed prints?
(b) How much of the total overhead cost is expected to be allocated to steel framed prints?
(c) How much of the total overhead cost is expected to be allocated to wood framed prints?
(d) What percentage of the total overhead cost is expected to be allocated to unframed prints?
6. Do you think the amount of overhead allocated to the three product categories is reasonable?
Relate your response to this question to your findings in previous questions.
7. Anticipate business problems that may result from allocating manufacturing overhead based
on the cost of the prints.

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