Engineer

REQUIREMENT 1:

Overhead Allocation Base- Complete Bhimani et al. (5th Ed.) Question 3.7, pg. 83

Describe the role of a manufacturing overhead allocation base in job costing.

To allocate manufacturing overhead costs to a job. For example, no. of machine hours used in providing the service or producing the product is used as a basis to calculate the cost of using the machine which is then used to allocate the cost to the job.

REQUIREMENT 2:

Overhead, Under/Overallocation - Complete Bhimani et al. (5th Ed.) Ex. 3.14, pg. 85

Ti- Enne Srl uses a normal costing system with a single manufacturing overhead cost pool and machine hours as the allocation base. The following data are for 2010:

Budgeted manufacturing overhead | $4,800,000 |

Overhead allocation base | Machine Hours |

Budgeted machine hours | 80,000 |

Manufacturing overhead incurred | $4,900,000 |

Actual machine hours | 75,000 |

Actual rate= $4,900,000/75,000=$65.33/Machine Hr

| Actual machine hours | Manufacturing Overhead | 2010 end of year balance |

Cost of Goods Sold | 60,000 | 60000x65.33=$3,919,800 | $8,000,000 |

Finished Goods | 11,000 | 11000x65.33=$718,630 | $1,250,000 |

Work in Progress | 4,000 | 4000x65.33=$261,320 | $750,000 |

1. Calculate the budgeted manufacturing overhead rate for 2010

Pre-determined MOHR= $4800000/80000=$60/machine hour

2. Calculate the under- or over allocated manufacturing overhead of Ti-Enne in 2010.

Total Manufacturing overhead allocated=75000x$60=$4,500,000

Total Manufacturing overhead incurred=$4,900,000

Under allocated overhead= $4,900,000-$4,500,000=$400,000

Prorate (allocate) this under- or overallocated amount using

a) Immediate write off to COGS

DR COGS $400,000

CR Mfg Overhead Expense $400,000

b) Proration based on closing balances (before proration) in WIP, FG and COGS

WIP’s proportion: 750,000/(8,000,000+1,250,000+750,000)=0.075=7.5%

DR WIP: $400,000x0.075=$30,000

FG’s...