Agassi Company uses a job order cost system in each of its three manufacturing d
ID: 2469154 • Letter: A
Question
Agassi Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K.
In establishing the predetermined overhead rates for 2014, the following estimates were made for the year.
Department
D
E
K
Manufacturing overhead
$ 1,200,000
$ 1,500,000
$ 900,000
Direct labor costs
$ 1,500,000
$ 1,250,000
$ 450,000
Direct labor hours
100,000
125,000
40,000
Machine hours
400,000
500,000
120,000
During January, the job cost sheets showed the following costs and production data.
Department
D
E
K
Direct materials used
$ 140,000
$ 126,000
$ 78,000
Direct labor costs
$ 120,000
$ 110,000
$ 37,500
Manufacturing overhead incurred
$ 99,000
$ 124,000
$ 79,000
Direct labor hours
8,000
11,000
3,500
Machine hours
34,000
45,000
10,400
Compute the total manufacturing costs assigned to jobs in January in each department.
Manufacturing Costs
Department D
$ 96000
Department E
$ 132000
Department K
$ 78000
Department
D
E
K
Manufacturing overhead
$ 1,200,000
$ 1,500,000
$ 900,000
Direct labor costs
$ 1,500,000
$ 1,250,000
$ 450,000
Direct labor hours
100,000
125,000
40,000
Machine hours
400,000
500,000
120,000
Explanation / Answer
MANUFACTURING COST ASSIGNED TO DEPARTMENT D
BASE = (MANUFACTURING OVERHEAD / DIRECT LABOUR COST)
= ($1200000 / $1500000)
= 80% OF DIRECT LABOUR COST
SO , MANUFACTURING COST ASSIGNED TO DEPARTMENT D
= $120000 * 80%
= $96000
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MANUFACTURING COST ASSIGNED TO DEPARTMENT E
BASE = (MANUFACTURING OVERHEAD / DIRECT LABOUR HOUR)
= ($1500000 / 125000)
= $12 PER DIRECT LABOUR HOUR
SO , MANUFACTURING COST ASSIGNED TO DEPARTMENT E
= 11000 * $12
= $132000
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MANUFACTURING COST ASSIGNED TO DEPARTMENT K
BASE = (MANUFACTURING OVERHEAD / MACHINE HOUR)
= ($900000 / 120000)
= $7.5 PER MACHINE HOUR
SO , MANUFACTURING COST ASSIGNED TO DEPARTMENT K
= 10400 * $7.5
= $78000
= $96000