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4-20: Job costing, accounting for manufacturing overhead, budgeted rates.
The Lynn Company uses a job-costing system at its Minneapolis plant. The plant has a Machining Department and an Assembly Department. Its job-costing system has two direct cost categories (direct materials and direct manufacturing labor) and two manufacturing overhead cost pools (the Machining Department overhead, allocated to jobs based on actual machine-hours, and the Assembly Department overhead, allocated to jobs based on actual direct manufacturing labor costs). The 2009 budget for the plant is:
Machining Dept. Assembly Dept.
Manufacturing overhead $1,800,000 $3,600,000
Direct manufacturing labor costs $1,400,000 $2,000,000
Direct manufacturing labor hours 100,000 200,000
Machine Hours 50,000 200,000
1. Present an overview diagram of Lynn's job-costing system. Compute the budgeted manufacturing overhead rate of each department.
2. During February, the job cost record for Job 494 contained the following:
Machining Dept. Assembly Dept.
Direct material used $45,000 $70,000
Direct manufacturing labor costs 14,000 15,000
Direct manufacturing labor hours 1,000 1,500
Machine hours 2,000 1,000
Compute the total manufacturing overhead costs allocated to Job 494.
3. At the end of 2009, the actual manufacturing costs were $2,100,000 in Machining and $3,700,000 in Assembly. Assume the 55,000 actual machine hours were used in Machining and that actual direct manufacturing labor costs in Assembly were $2,200,000. Compute the over and under-allocated manufacturing overhead for each dept.
4-21: Job costing, consulting firm.
Taylor and Associates, a consulting firm, has the following condensed budget for 2009:
Professional Labor $5,000,000
Client Support 13,000,000 18,000,000
Operating Income $2,000,000
Taylor has a single direct cost category (professional labor) and a single indirect cost pool (client support). Indirect costs are allocated to jobs on the basis of professional labor costs.
1. Prepare an overview diagram of the job costing system. Compute the 2009 budgeted indirect cost rate for Taylor and Associates.
2. The markup rate for pricing jobs is intended to product operating income equal to 10% of revenues. Compute the markup rate as a percentage of professional labor costs.
3. Taylor is bidding on a consulting job for Red Rooster, a fast food chain specializing in poultry meats. The budgeted breakdown of professional labor on the job is as follows:
Profession Labor Category Budgeted Rate per hour Budgeted Hours
Director $200 3
Partner 100 16
Associate 50 40
Assistant 30 160
Compute the budgeted cost of the Red Rooster job. How much will Taylor bid for the job if it is to earn its target operating income of 10% of revenues?
4-26: Job costing, journal entries.
Donnell transport assembles prestige manufactured homes. Its job costing system has 2 direct cost categories (direct materials and direct manufacturing labor) and one indirect cost pool (manufacturing overhead allocated at a budgeted $30 per machine hour in 2009). The following data (in millions) pertain to operations for 2009:
Material Control, beginning balance, Jan 1, 2009 $12
Work in process control, beg. Balance Jan 1, 2009 2
Finished goods control, beg. Balance Jan 1, 2009 6
Materials and supplies purchased on credit 150
Direct materials used 145
Indirect materials (supplies) issued to various production depts. 10
Direct manufacturing labor 90
Indirect manufacturing labor incurred by various production depts. 30
Depreciation on plant and manufacturing equipments 19
Misc. manufacturing overhead incurred 9
Manufacturing overhead allocated, 2,100,000 actual machine hours ?
Cost of goods manufactured 294
Costs of goods sold 292
1. Prepare an overview diagram of Donnell transport's job costing system.
2. Prepare journal entries. Number your entries. Post to T accounts. What is the ending balance of Work-in process control?
3. Show the journal entry for disposing of under or over-allocated manufacturing overhead directly as a year-end write off to Cost of goods sold. Post the entry to T accounts.
4-36: Proration of overhead with two indirect cost pools.
The Finer furniture company produces expensive desks for executives. The wood for the desks are cut into standard sizes and the desks are assembled in the Construction and Assembly (C&A) dept. The assembled desk are then sent to the Finishing Dept. to be stained. Overhead costs in the C&A dept are allocated to production using machine-hours, and overhead costs in the Finishing Dept. are allocated using direct labor hours.
Finer Furniture uses a normal costing system and has the following data for 2008
Budgeted overhead rate $40 per machine hour $50 per direct labor hour
Actual overhead cost $163,000 $87,000
Actual Hours 4000 machine hours 2,000 labor hours
Ending balances, machine hours and direct labor hours data are as follow
Account Bal. before pror. Dec. 31, 08 Actual Machine-hrs Actual Dir. Lab-hrs
Work in process $150,000 200 100
Finished goods 250,000 600 400
Cost of goods sold 1,600,000 3,200 1,500
1. Calculate the over- or under- allocated overhead for each of the C&A and Finishing depts. in 2008.
2. Calculate the ending balances in work in process, finished goods and cost of goods sold if the under- or over- allocated overhead amounts in each dept are:
a. Written off to cost of goods sold
b. Prorated based on the ending balance (before proration) in each of the three accounts
c. Prorated based on the overhead allocated in 2008 (before proration) in the ending balances in each of the three accounts.
3. Which method would you choose?
The solution explains some questions relating to job order costing