Cost N Management Accounting

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PART (i) (20 marks)

Walker Company uses a job costing system at its plant. The plant has two production departments – Machining and Assembly. Its job-costing system has two direct cost categories (direct materials and direct manufacturing labour) and two manufacturing overhead cost pools (the Machining Department, allocated using machine hours and the Assembly Department, allocated using direct manufacturing labour costs). The 2010 budget for the plant is as follows:

Machining Dept. Assembly Dept.

Manufacturing Overhead Direct manufacturing labour cost Direct manufacturing labour hours Machine hours

$1,800,000 $1,400,000 100,000 50,000

$3,600,000 $2,000,000 200,000 200,000 a) Calculate an overhead rate for each department. (3½ marks) b) During the month of August, the cost record for Job #400 shows the following: Machining Dept. Assembly Dept.

Direct material used Direct manufacturing labour costs Direct manufacturing labour hours Machine hours

$45,000 $14,000 1,000 2,000

$63,000 $15,000 1,500 1,000

What is the total manufacturing overhead allocated to Job #400? (3½ marks)

c) Given that selling, distribution and administrative costs are absorbed in each job cost at 20% of prime cost & that Job #400 required special design costs of $7,000; calculate the total cost and quotation price of Job #400, where a profit margin of 25 % is applied to the selling price of all jobs. (8 marks)

d) At the end of 2010, the company had actually incurred the following:

Machining Dept. Assembly Dept.

Manufacturing overhead incurred Direct manufacturing labour costs Machine hours

$2,100,000 $1,980,000 55,000

$3,700,000 $2,200,000 210,000

Compute the manufacturing overhead variance for each department and for the plant as a whole. Show the journal entry necessary to dispose of this variance. (5 marks)…...

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