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No. 4-20-21 Page 138-139

The document discusses the allocation of manufacturing overhead costs to jobs or cost objects using a step-down method. Budgeted overhead rates are calculated based on the allocation bases of machine hours for machining department and direct manufacturing labor costs for assembly department. Actual overhead costs are then allocated to jobs using these rates and variances are calculated. It also shows the calculation of an estimated billing rate using professional labor costs and target operating income percentage to generate a bid price for a consulting job.

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Nemalai Vital
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58 views6 pages

No. 4-20-21 Page 138-139

The document discusses the allocation of manufacturing overhead costs to jobs or cost objects using a step-down method. Budgeted overhead rates are calculated based on the allocation bases of machine hours for machining department and direct manufacturing labor costs for assembly department. Actual overhead costs are then allocated to jobs using these rates and variances are calculated. It also shows the calculation of an estimated billing rate using professional labor costs and target operating income percentage to generate a bid price for a consulting job.

Uploaded by

Nemalai Vital
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 6

No.

4-20 page 138


1.
Machining department Assembly department
Indirect Manufacturing overhead Manufacturing overhead
cost pool

Machine-Haurs Direct
Cost Manufacturing
Allocation Base labor cost

Cost object
Allocated manufacturing overhead costs
product

Direct costs

Direct cost

Direct Direct
materials Manufactu-
ring labor

Budgeted manufacturing overhead divided by allocation base:

Machining Department overhead: $ 1800000 =


50,000
Assembly Department overhead: $3,600,000 =
$2,000,000

2. Machining department overhead allocated, 2,000 hours X $36


Assembly department overhead allocated, 180% X 15000
Total manufacturing overhead allocated to Job 494

3.
Actual manufacturing
Manufacturing overhead
overhead allocated,
$36 X 55,000 machine-hours
180% X $2,200,000
Underallocated (Overallocated)

No. 4-21 page 139


1.

Machining department
Indirect Manufacturing overhead
cost pool

Professional
Cost labor cost
Allocation Base

Cost object
job for Indirect costs
consulting client
Direct costs

Direct cost Profession-


al labor
Profession-
al labor

2. Budgeted indirect-cost rate for client support can be calculated as follows:


Budgeted indirect-cost rate = $13,000,000 + $5,000,000 = 260% of professional labor costs
At the budgeted revenues of $20,000,000 Taylor's operating income of $2,000,000 equals 10%
Markup rate = $20,000,000 + $5,000,000 = 400% of direct professional labor costs

3. Budgeted costs
Direct costs:
Director, $200 X 3 $600
Partner, $100 x 16 $1,600
Associate, $50 X 40 $2,000
Assistant, $30 160 $4,800
Consultng support, 260% X $9,000

Indirect costs:
Total costs

As calculated in requirement 2, the bid price to earn a 10% income-to-rev


direct professional costs. Therefore, Taylor should bid $9,000 = $36,000
price to earn target operating income-to-revenue margin of 10% can also

Direct costs
Indirect costs
Operating income (0.10 X $36,000)
Bid price
ment
verhead

t
uring
ost

ect
actu-
abor

$36 per machine-hour


180% of direct manufactur labor
costs

00 hours X $36 $72,000


% X 15000 27000
494 $99,000

Machining Assembly
Department Department
$2,100,000 $3,700,000
1,980,000
3960000
$120,000 ($260,000)
lows:
rofessional labor costs
of $2,000,000 equals 10% of revenues.
nal labor costs

$9,000
$23,400

$32,400

earn a 10% income-to-revenue margin is 400% of


ould bid $9,000 = $36,000 for the Tasty Chicken job. Bid
ue margin of 10% can also be calculated as

$9,000
$23,400
$3,600
$36,000

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