Job-Order Costing: Calculating Unit Product Costs

Case 2-22 (60 minutes) Case 2-22 (continued) 1. a. Predeterminedoverheadrate=EstimatedtotalamountoftheallocationbaseEstimatedtotalmanufacturingoverheadcost=$600,000directlaborcost$840,000=140%ofdirectlaborcost cost) and results in a large amount of overhead cost being charged to the Kogpers job, as shown in Part 1. This may explain why the company bid too high and lost the job. Too much overhead cost was assigned to the job for the kind of work being done on the job in the plant. On jobs that require a large amount of labor in the Fabricating or Machining Departments the opposite will be true, and the company will b. The manufacturing overhead cost applied to the Koopers job is comtend to charge too little overhead cost to the jobs if a plantwide overputed as follows: head rate is being used. The reason is that the plantwide overhead rate $9,500140%=$13,300 (140%) is much lower than the rates would be if these departments were considered separately. 4. 2. If departmental overhead rates had been used, the bid would have been: 3. The bulk of the labor cost on the Koopers job is in the Assembly Department, which incurs very little overhead cost. The department has an overhead rate of only 30% of direct labor cost as compared to much higher rates in the other two departments. Therefore, as shown above, use of departmental overhead rates results in a relatively small amount of overhead cost being charged to the job. Use of a plantwide overhead rate in effect redistributes overhead costs proportionately between the three departments (at 140% of direct labor