How do fixed costs in a business create a problem for job costing. answer 1 and 2

Assignment 1 (20 marks)

Question 1 (5 marks)

1. How do fixed costs in a business create a problem for job costing.
2. Provide examples of wages that might be deemed to be (1) a direct cost and (2) an indirect costs.

Question 2 (5 marks)

Estimated or budgeted cost and operating data for three companies for 2013 are given below:

Company X Company Y Company Z

Units to be produced 10,000 8,000 12,000

Machine- hours 50,000 10,000 6,000

Direct labour- hours 12,000 16,000 36,000

Direct labour cost $48,000 $64,000 $150,000

Factory overhead cost 150,000 40,000 60,000

Predetermined overhead rates are calculated on the following bases in the three companies:

Overhead rate based on

Company X Machine-hours

Company Y Direct labour-hours

Company Z Direct labour cost

Required:

a. Calculate the predetermined overhead rate to be used in each company during 2013. (1.5 marks)

b. Assume that three jobs are worked on during 2013 in company X. Machine-hours recorded by jobs are: job 23, 21,000 hours; job 29, 16,000 hours; and job 31, 11,000 hours. How much overhead will the company apply to work in process? If actual overhead costs total $149,000 for 2012, will overhead be over- or under-applied? By how much? (1.5 marks)

c. Of what value is the schedule of cost of goods manufactured and how does it tie into the profit and loss statement. Discuss. (2 marks)