Job costing The Gonzalez Company uses a job order costing system at its plant
Job costing The Gonzalez Company uses a job order costing system at its plant in Green Bay, Wisconsin. The plant has a machining department and a finishing department. The company uses two cost driver rates for allocating manufacturing overhead costs to job orders: one on the basis of machine hours for allocating machining department overhead costs and the other on the basis of direct labor cost for allocating the finishing department overhead costs. Estimates for the current year follow:
MACHINING DEPARTMENT | FINISHING DEPARTMENT | |
Manufacturing overhead cost | $500,000 | $400,000 |
Machine hours | 20,000 | 2,000 |
Direct labor hours | 5,000 | 22,000 |
Direct labor cost | $150,000 | $500,000 |
Required
(a) Determine the two departmental cost driver rates.
(b) Last month, cost records for job 511 show the following:
MACHINING DEPARTMENT | FINISHING DEPARTMENT | |
Direct materials cost | $12,000 | $2,000 |
Direct labor cost | $300 | $1,200 |
Direct labor hours | 10 | 50 |
Machine hours | 80 | 8 |
Determine the total costs charged to job 511.
(c) Explain why Gonzalez Company uses two different cost driver rates in its job costing system.
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Solution: Job costing The Gonzalez Company uses a job order costing system at its plant