Job

Problem 1
Selling price of Job no.1 has been calculated on the following basis.
Rs
Materials 12.08
Direct Wages – 22 hours at 0.25 per hour 5.50
Dept A- 10 hours
Dept B – 4 hours
Dept C- 8 hours 17.58
Plus 33% on prime cost 5.86
23.44
Analysis of the previous year profit and loss account shows the following
Particulars Particulars
Materials used 77,500 Factory/Manufacturing
Overheads
Direct Wages A 2500
A 5000 B 4000
B 6000 C 1000
C 4000 Selling Cost 30000
Allocate the manufacturing overheads based on the direct labour hours and selling cost based on the
cost of manufacturing. Prepare the job cost sheet using the previous year figures as the basis for
allocating overheads. Maintain a profit margin 10%
Problem 2
A manufacturing company is divided into three production departments – A, B and C. All production
is to customers’ orders. All orders are dissimilar, and they go through all the three departments.
Manufacturing Costs for a given period were as follows:
Particulars Dept A Dept B Dept C Total

Direct Materials 180000
Direct Labour 40000 20000 30000 90000
Indirect Manufacturing costs 20000 40000 30000 90000
The cost of producing a particular order was determined as follows:
Particulars
Direct Materials 1000
Direct Labour
Dept A 120
Dept B 280
Dept C 200 600
Indirect manufacturing cost 600
2200
The General Manager had a hazy idea that the jobs executed on orders of this nature are under-
priced. So, the services of a firm of cost accountants, of which you are a member, have been
acquired for a thorough investigation.
Can you detect, after a careful perusal of the limited available information, the fundamental fallacy
of the company’s method assuming that the direct labour cost is an acceptable basis for distributing
indirect manufacturing costs? Prepare a revised cost for order distributing indirect manufacturing
costs in a manner you consider more correct than the company’s procedure.
Problem 3: Batch Costing (Economic Batch Quantity)
AB Ltd.is committed to supply 24,000 bearings per annum to CD Ltd. On a steady basis. It is
estimated that it costs 10 paise as inventory holding cost per bearing per month and that the set-up
cost per run of bearing manufacture is ` 324.
a. What would be the optimum batch run size for bearing manufacturer
b. What is the minimum inventory holding cost at the optimum run size
c. Assuming that company has the policy of manufacturing 6000 bearings per run, how much
extra cost would the company be incurring as compared to the optimum run suggested in
(a).
Problem 4: Batch Costing
Component ‘Gold’ is made entirely in cost centre 100. Material cost is 6 paise per component and
each component takes 10 minutes to produce. The machine operator is paid 72 paise per hour, and
machine hour rate is ` 1.50. The setting up of the machine to produce the component ‘Gold’ takes 2
hours 20 minutes.
On the basis of this information, prepare a cost sheet showing the production and setting up cost,
both in total and per component, assuming that a batch of :
a. 10 components
b. 100 components
c. 1000 components
Problem 5:
Travel craft. Inc manufactures a complete line of fibre glass suitcases and attaché cases. The firm has
three manufacturing departments: Moulding, Component and Assembly. There are two service
departments: Power and Maintance
The sides of the cases are manufactured in the moulding department, the frames, hinges and locks
are manufactured in the component department. The cases are completed in the assembly
department. Varying amount of materials, time and efforts are required for each of the cases. The
power department and maintenance department provide services to three manufacturing
departments.
Travel Craft has always used the plantwide overhead rate. Direct labour hours are used to assign
overheads to the product. The predetermined overhead rate is calculated by dividing the companies
total estimated overhead by the total estimated direct labour hours to be worked in the three
manufacturing departments.
Karon Mason, director of cost management, has recommended that Travel Craft use departmental
overhead rates. The planned operating costs and expected levels of activity for the coming year have
been developed by Mason and are presented by the department in the following schedules (All Nos
in thousands)
Manufacturing Departments
Moulding Component Assembly
Department Activity Measures
Direct Labour Hours 500 2000 1500
Machine Hours 875 125 0
Departmental Costs
Direct Materials 24800 60000 2500
Direct Labour 7000 40000 24000
Variable Overheads 7000 20000 33000
Fixed Overheads 35000 12400 12200
Total Departmental Costs 73800 132400 71700
Manufacturing Department
Moulding Component Assembly
Use of service department
Maintenance
Estimated usage in labour hours in 90 25 10
the coming year
Power (in Kilowatt-hours)
Estimated usage for the coming year 360 320 120
Maximum allotted capacity 500 350 150
Service Department
Power Maintenance
Maximum capacity 1000 KWH Adjustable
Estimated Usage 800 KWH 125
Departmental Costs
Maintenance and Supplies 10000 3000
Variable Labour 2800 4500
Fixed Overhead 24000 500
Total Service Department Costs 36800 8000
Calculate the plantwide overhead rate for the coming year
Mason has asked to develop departmental overhead rates for comparison with the plantwide rate.
a. Maintenance department costs should be allocated using the direct method

b. Power department costs should be allocated to three manufacturing department using dual
cost combined with direct method. Fixed costs are to be allocated according to maximum
usage capacity and variable costs are to be allocated according to planned usage for the
coming year.
c. Calculate departmental overhead rate for the three manufacturing departments using a
machine-hour cost driver for the moulding department and a direct-labour-hour cost driver
for the component and assembly departments.

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Problem 1

Particulars Dept A Dept B Dept C Total

The cost of producing a particular order was determined as follows:

Problem 3: Batch Costing (Economic Batch Quantity)

Problem 4: Batch Costing

Calculate the plantwide overhead rate for the coming year

a. Maintenance department costs should be allocated using the direct method

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