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Solomon Company and Wigan Associate: Cost Accounting Problem

1. Job costing, accounting for manufacturing overhead, budgeted rates. The Solomon Company uses a job-costing system at its Dover, Delaware, plant. The plant has a Machining Department and a Finishing Department. Solomon uses normal costing with two direct- cost categories ( direct materials and direct manufacturing labor) and two manufacturing overhead cost pools ( the Machining Department, with machine hours as the allocation base, and the Finishing Department, with direct manufacturing labor costs as the allocation base). The 2009 budget for the plant is as follows:

Machining Department Finishing Department Manufacturing overhead costs $10,000,000 $8,000,000 Direct manufacturing labor costs $ 900,000 $4,000,000
Direct manufacturing labor- hours 30,000 160,000
Machine- hours 200,000 33,000

--Prepare an overview diagram of Solomon's job- costing system.
--What is the budgeted overhead rate in the Machining Department? In the Finishing Department?
-- During the month of January, the job- cost record for Job 431 shows the following:
Machining Department Finishing Department
Direct materials used $14,000 $3,000
Direct manufacturing labor costs $600 $1,250
Direct manufacturing labor-hours 30 50
Machine-hours 130 10

--Compute the total manufacturing overhead allocated to Job 431.
--Assuming that Job 431 consisted of 200 units of product, what is the cost per unit?

Amounts at the end of 2009 are as follows:

Machining Department Finishing Department Manufacturing overhead incurred $ 11,200,000 $ 7,900,000 Direct manufacturing labor costs $ 950,000 $ 4,100,000
Machine- hours 220,000 32,000

--Compute the under- or overallocated manufacturing overhead for each department and for the Dover plant as a whole.
--Why might Solomon use two different manufacturing overhead cost pools in its job- costing system?

2. Job costing with single direct-cost category, single indirect-cost pool, law firm. Wigan Associates is a recently formed law partnership. Ellery Hanley, the managing partner of Wigan Associates, has just finished a tense phone call with Martin Offiah, president of Widnes Coal. Offiah strongly complained about the price Wigan charged for some legal work done for Widnes Coal. Hanley also received a phone call from its only other client ( St. Helen's Glass), which was very pleased with both the quality of the work and the price charged on its most recent job. Wigan Associates operates at capacity and uses a cost- based approach to pricing ( billing) each job. Currently it uses a simple costing system with a single direct- cost category ( professional labor- hours) and a single indirect- cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files show the following:

Widnes Coal St. Helens Glass
Professional labor 104 hours 96 hours

Professional labor costs at Wigan Associates are $ 70 an hour. Indirect costs are allocated to cases at $ 105 an hour. Total indirect costs in the most recent period were $ 21,000.

--Why is it important for Wigan Associates to understand the costs associated with individual jobs? 2. Compute the costs of the Widnes Coal and St. Helen's Glass jobs using Wigan's simple costing system.

Solution Preview

See attached file.

Solomon Company:

I am not sure what kind of "diagram" they want. Here is the data (in Excel) so you can make a diagram that matches your text or illustration.

Solomon probably uses two different cost pools so that they can use two different cost drivers. The overhead in Machining is caused by machine hours (mostly) so that is a good way to assign those costs to jobs. Overhead in finishing is ...

Solution Summary

Your tutorial shows the computations in Excel (click in cells to see formula and computation). A paragraph responds to the questions posed.