LBJ Corp. produces tailor made statues based on the instructions about colors, size and design received from each of its customers. The production process is semi-automated where the statue is molded by a machine with limited manual support in the molding department and then hand painted by a worker in the painting department with limited use of machines. The overhead in the molding department is allocated to jobs based on machine hours and the overhead in the painting department is allocated to jobs based on direct manufacturing labor costs.

LBJ Corp. uses a normal-costing system and had the following budgeted figures for 2017:

Molding Department Painting Department

Manufacturing Overhead 750,000 480,000

Machine hours (MH) 10,000 MH 690 MH

Direct Manufacturing labor costs 580,000 1,920,000

Required:

1. Explain the differences between job costing and process costing. Provide one example for each costing method.
2. Distinguish between actual costing and normal costing. How can LBJ Corp. justify their preference towards normal costing?
3. During March LBJ Corp.-s most important customer ordered Job 36 with the following resources involved:

Molding Department Painting Department

Direct Materials 8,105 1,200

Direct Manufacturing labor costs 6,440 22,080

Machine hours (MH) 109 MH 8 MH

Assuming that Job 36 was composed of 460 statues, calculate total cost per statues.

4. At the end of 2017, the actual manufacturing overhead costs incurred were 745,200 in the Molding Department and 499,350 in the Painting department. If 10,050 actual machine hours were used in the Molding department and 1,987,200 direct manufacturing labor costs were incurred in the Painting department, compute the over or under allocation of manufacturing overhead for each department and in total.
5. Assume at the end of 2017, work-in-progress inventory, finished goods inventory and cost of goods sold accounts show the following balances: 400,000 , 1,000,000 , and 10,000,000 , respectively. And the portion of manufacturing overhead costs included in work-in-progress inventory, finished goods inventory and cost of goods sold is as follows: 200,000 , 400,000 , and 4,500,000 , respectively.

Allocate the total over or under allocated manufacturing overhead costs using the prorate approach.