Job order costing                                                                          40 marks

Your friend has his own business (Sisulu Ltd). He is currently using job order costing and is applying a plant-wide overhead rate. At the beginning of March, Sisulu Ltd had two jobs in process: Job 24 and Job 25, with the following accumulated cost information:

  Job 24

$

 Job 25

$
Direct materials 5 100 1 500
Direct labour 1 200 3 000
Applied overhead   780 1 950
Balance, 1 March 7 080 6 450

 

During March, two more jobs (26 and 27) were started. The following direct materials and direct labour costs were added to the four jobs during the month of March:

Job 24

$

 Job 25

$

 Job 26

$

 Job 27

$
Direct materials 2 500 7 110 1 800 1 700
Direct labour   800 6 400   900   560

 

At the end of March, Jobs 24, 25 and 27 were completed. Only Job 25 was sold. On 1 March, the balance in Finished Goods was zero.

Required:

  1. Write a memo to your friend and explain the following short answer questions:
  1. What is a predetermined overhead rate and how is overhead cost assigned to production when a predetermined overhead rate is used?                                                  (4 marks)
  2. What is a departmental overhead rate and a plant-wide overhead rate? (4 marks)
  3. What is an overhead variance and how is it accounted for typically? (7 marks)
  4. Is the cost of a job related to the price charged, and if so, how? Justify your answer.     (4 marks)
  1. Calculate the overhead rate based on direct labour costs (Note: round to three decimal places)                                                                                                       (3 marks)
  2. Prepare a brief job-order cost sheet for the four jobs. Show the balance as of 1 March as well as direct materials and direct labour added in March. Apply overhead to the four jobs for the month of March and show the ending balances.                                                 (14 marks)
  3. Calculate the ending balances of Work in Process and Finished Goods as of 31 March.                                                                                                       (3 marks)
  4. Calculate the Cost of Goods Sold for March.                         (1 mark)
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