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