Saddle Inc. applies overhead on the basis of direct labor costs. The company estimates annual overhead costs will be $760,000 and annual direct labor costs will be $950,000. During February, Saddle works on two jobs: A16 and B17. Summary data concerning these jobs are as follows: Manufacturing Costs Incurred: Purchased $54,000 of raw materials on account. Factory labor $76,000, plus $4,000 employer payroll taxes. Manufacturing overhead exclusive of indirect materials and indirect labor $59,800. Assignment of Costs: Direct Materials: Job A16: $27,000, Job B17: $21,000 $3,000 Indirect Materials: $3000 Direct Labor: Job A16: $52,000, Job B17: $26,000 $2,000 Indirect labor: $2000 The company completed Job A16 and sold it on account for $150,000. Job B17 was only partially completed. Instructions (a) Compute the predetermined overhead rate. (b) Journalize the February. (c) What was the amount of under- or overapplied manufacturing overhead?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Saddle Inc. applies
During February, Saddle works on two jobs: A16 and B17. Summary data concerning these jobs are as follows:
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Purchased $54,000 of raw materials on account.
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Factory labor $76,000, plus $4,000 employer payroll taxes.
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Manufacturing overhead exclusive of indirect materials and indirect labor
$59,800.
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Assignment of Costs:
Direct Materials: Job A16: $27,000, Job B17: $21,000 $3,000 Indirect Materials: $3000
Indirect labor: $2000
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Instructions (a) Compute the predetermined overhead rate. |
Predetermined Overhead Rate :— It is the rate that is used to apply overhead to production.
It is calculated by dividing total estimated overhead cost by estimated cost allocation base.
Manufacturing overhead applied :— It is calculated by multiplying predetermined overhead rate with actual cost allocation base.
Under Applied Overhead :— It occurs when actual manufacturing overhead is greater than the manufacturing overhead applied.
Overapplied overhead :— It occurs when actual manufacturing overhead is less than the manufacturing overhead applied.
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