TUTORIAL 6: JOB AND Batch Costing

Question 1
Job No.909 was completed in three departments of a factory. Costs details for this job were:
Department Direct Direct Direct labour materials
wages hours (RM) (RM)
X 650 800 1,000
Y 940 300 400
Z 230 665 700

The production overheads are absorbed into the jobs using predetermined departmental
overhead absorption rates based on the direct labour hours. The administrative overhead is
absorbed as a percentage of production cost.

The figures for the last cost period for the three departments on which the current overhead
recovery rates are base were as follows:

Department X Y Z
Direct materials (RM) 6,125 11,360 25,780
Direct wages (RM) 9,375 23,400 54,400
+¿
Direct labour hours 12,500 36,000 64,000
Production overheads (RM) 5,000 7,200 9,600
Administrative overheads (RM) 2,870 14,686 8,978

Required:
Prepare a cost card showing the cost of Job No.909 and to show the price charged, assuming
a profit margin of 20%.

Answer
Job No. 909
RM RM
Direct materials
- Dept X 650
- Dept Y 940
- Dept Z 230 1,820

Direct wages
- Dept X 800
- Dept Y 300
- Dept Z 665 1,765
Prime cost 3,585
Production overhead absorbed
- Dept X (RM5,000 / 12,500 × 1,000) 400
- Dept Y (RM7,200 / 36,000 × 400) 80
- Dept Z (RM9,600 / 64,000 × 700) 105 585
Production cost 4,170

259
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100 821
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 Administrative overhead (administrative/pc) x actual
- Dept X (RM2,870 / RM20,500 × RM1,850)
- Dept Y (RM14,686 / RM41,960 × RM1,320)
- Dept Z
- (RM8,978 / RM89,780 × RM1,000)
Total cost (80%) 4,4991
Profit (20%) 1,247.75
991
Selling price (100%) 6,238.75

Question 2
Cee Sdn. Bhd. has three production departments. It has been using a single production
overhead absorption rate, expressed as a percentage of direct wages for many years. In recent
years, it has invested heavily in machinery especially for Department A. The managing
director has learned that departmental absorption rates would result in more accurate job
costs. He seeks your opinion to calculate an overhead absorption rate for each department.
The following are the budgeted and actual data for December 2019:

Department Direct Wages Direct labour Machine hours Production

(RM) hours overhead cost
(RM)
Budget:
Department: A 10,000 4,000 20,000 100,000
B 40,000 20,000 5,000 28,000
C 20,000
70,000 44,000 25,000 140,000
20,000
-
12,000 4,100 19,000 110,000
12,000 46,000 22,000 4,800 24,000
Total 18,000 19,000 - 13,000
76,000 45,100 23,800 147,000
Actual:
Department: A
B
C
Total

Required:
(a) Calculate the current production overhead absorption rate (OAR).

(b) Calculate an appropriate overhead absorption rate (OAR) for each of the departments
and briefly explain the reason(s) for your choice of the absorption basis.

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 (c) During December 2019, one of the jobs, Job P007 incurred the following costs and
hours in the department:
Direct Direct Direct Machine
materials wages labour hours hours
(RM) (RM)
Department: A 400 66 22 100
B 110 160 80 25 C 50 25 25 -

The company uses a mark-up of 25% as gross profit.

(i) Calculate the production cost and gross profit for Job P007 using the current
absorption rate.

(ii) Calculate the production cost and gross profit for Job P007 using the departmental
overhead absorption rate calculated in part (b).

(d) Calculate the over/ (under) absorption for each of the departments for the period using
the current absorption rate.

(e) Calculate the over/(under) absorption for each of the departments for the period using
the departments for the period using the departmental overhead absorption.

Answer
(a)
OAR = Total budgeted overheads / Total budgeted direct wages × 100%
= RM140,000 / RM70,000 × 100%
= 200% of direct wages

(b)
OAR for Department A = Budgeted overhead / Budgeted machine hours
= RM100,000 / 20,000 hours
= RM5 per machine hours

OAR for Department B = Budgeted overhead / Budgeted direct labour hours

= RM28,000 / 20,000 hours
= RM1.40 per direct labour hour

OAR for Department C = Budgeted overhead / Budgeted direct labour hours

= RM12,000 / 20,000 hours
= RM0.60 per direct labour hour

Department A is a capital intensive department, thus machine hours will be more appropriate
than labour hours.

Department B and C are labour intensive departments, thus labour hours will be more
appropriate than machine hours.

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 (c)
Job P007
(i) (ii)
(66x200%) RM RM RM RM
Direct materials
- Department A 400 400
- Department B 110 110
- Department C 50 560 50 560

Direct wages
- Department A 66 66
- Department B
160 160
- Department C
25 251 25 251
Prime Cost
811 811
Production overhead absorbed
- Department A 132 500
- Department B 320 112
- Department C 50 502 15 627
Production cost/Total cost (100%) 1,313 1,438
Profit (25%) 328.25 359.50
Selling price (125%) 1,641.25 1,797.50

(d)
Department Overhead absorbed Actual overhead Over/(Under)
(RM) (RM) absorbed (RM)
A 200% × RM12,000 = 110,000 (86,000)
24,000
B 200% × RM46,000 = 24,000 68,000
92,000
C 200% × RM18,000 = 13,000 23,000
36,000
5,000

(e)
Department Overhead absorbed Actual overhead Over/(Under)
(RM) (RM) absorbed (RM)
A RM5 × 19,000 = 110,000 (15,000)
95,000
B RM1.40 × 22,000 = 24,000 6,800
30,800
C RM0.60 × 19,000 = 13,000 (1,600)
11,400

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 (9,800)

Question 3 (Batch Costing)

Iris Sdn. Bhd. produces and sells barbie dolls. The following costs have been incurred for an order of
600 dolls for the Batch No. 123 during March 2019: Direct
: RM22,000
materials
Direct labour:
Assembly : 200 hours at RM4.50 per hour Machining :
350 hours at RM6.00 per hour
Finishing : 140 hours at RM4.00 per hour

The following information shows the budgeted production overheads for the year 2019 based on the
budgeted activity levels:
Budgeted
Production production Budgeted activity
departments overheads (RM) level (labour hours)
Assembly 14,000 2,800
Machining 22,000 4,000
Finishing 12,000 2,500

Selling and administrative overheads are 20% of production cost.

The company sets a profit margin of 20% to determine the budgeted selling price.

Required:

(a) Calculate the total cost of Batch No.123, the unit cost and the selling price per unit.

Answer:
Batch No.123 RM RM
Direct materials 22,000
Direct Labour:
Assembly 200 x RM4.50 900
Machining 350 x RM6 2100
Finishing 140 x RM4
Prime Cost
Production Overheads:
Assembly 200 x RM5.00* 1000
Machining 350 x RM5.50* 1925
Finishing 140 x RM4.80* 672
Production Cost 3597
29,157
Selling & admin costs 20% x RM29,157
5831
Total Cost of 600 dolls (1batch) 34,988

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 Unit cost of 1 doll (RM34,988/600) 58.31
Profit of 1 unit of doll (20/80 * RM58.31) 14.58

Selling price of 1 unit of doll 72.89

(58.31/0.8)

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