Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
6) Fox Manufacturing is a small textile manufacturer using machine-hours as the single indirect cost
allocation rate to allocate indirect manufacturing costs to the various jobs contracted during the year. The
following estimates are provided for the coming year for the company and for the Maize High School
Science Olympiad job.
Company Maize High School Job
Direct materials $50,000 $500
Direct manufacturing labour $10,000 $100
Manufacturing overhead costs $40,000
Machine-hours 100,000 mh 800 mh
Required:
a. For Fox Manufacturing, determine the annual manufacturing indirect cost allocation rate.
b. Determine the amount of manufacturing overhead costs allocated to the Maize High School job.
c. Determine the estimated total manufacturing costs for the Maize High School job.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
7) Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to
products. Manufacturing overhead costs are applied on the basis of machine hours in the Machining
Department and on the basis of direct labour hours in the Assembly Department. At the beginning of
2012, the following estimates were provided for the coming year:
Machining Assembly
Direct labour hours 10,000 dlh 90,000 dlh
Machine hours 100,000 mh 5,000 mh
Direct labour cost $80,000 $720,000
Manufacturing overhead costs $250,000 $360,000
The accounting records of the company show the following data for Job #846:
Machining Assembly
Direct labour hours 50 dlh 120 dlh
Machine hours 170 mh 10 mh
Direct material cost $2,700 $1,600
Direct labour cost $400 $900
Required:
a. Compute the manufacturing indirect cost allocation rate for each department.
b. Compute the total cost of Job #846.
c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
8) Jordan Company has two departments, X and Y. Overhead is applied based on budgeted direct labour
cost in Department X, and budgeted machine hours in Department Y. The following additional
information is available.
Budgeted Amounts Department X Department Y
Direct labour cost $180,000 $165,000
Factory overhead $225,000 $180,000
Machine hours 51,000 mh 40,000 mh
Actual data for Job #10 Department X Department Y
Direct materials requisitioned $10,000 $16,000
Direct labour cost $11,000 $14,000
Machine hours 5,000 mh 3,000 mh
Required:
a. Compute the budgeted factory indirect cost allocation rate for Department X.
b. Compute the budgeted factory indirect cost allocation rate for Department Y.
c. What is the total overhead cost of Job 10?
d. If Job 10 consists of 50 units of product, what is the unit cost of this job?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
9) Sambell Manufacturing uses a predetermined manufacturing overhead rate to allocate
overhead to individual jobs. At the beginning of the year, the company expected to incur the following:
Manufacturing overhead costs $240,000
Direct labour cost 600,000
Machine hours 25,000
At the end of the year, the company had actually incurred the following:
Direct labour cost $920,000
Depreciation on manufacturing plant and equipment 250,000
Property taxes on plant 35,000
Sales salaries 12,000
Delivery drivers wages 8,000
Plant janitors wages 10,000
Machine hours 25,500 hours
Required:
1. Compute Trident’s indirect cost allocation rate based on labour cost.
2. Compute Trident’s indirect cost allocation rate based on machine hours.
3. How much overhead was allocated during the year if the allocation base was direct labour cost?
4. How much manufacturing overhead was incurred during the year?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
10) Northern Manufacturing uses a predetermined manufacturing overhead rate to allocate
overhead to individual jobs. At the beginning of the year, the company expected to incur the following:
Manufacturing overhead costs $320,000
Direct labour cost 640,000
Machine hours 20,000
At the end of the year, the company had actually incurred the following:
Direct labour cost $920,000
Depreciation on manufacturing plant and equipment 290,000
Property taxes on plant 55,000
Sales salaries 12,000
Delivery drivers wages 8,000
Plant janitors wages 40,000
Machine hours 20,500 hours
Required:
1. Compute Trident’s indirect cost allocation rate based on labour cost.
2. Compute Trident’s indirect cost allocation rate based on machine hours.
3. How much overhead was allocated during the year if the allocation base was machine hours?
4. How much manufacturing overhead was incurred during the year?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
4.4 Distinguish among three methods—actual, budgeted and normal—to calculate job-
cost allocation rates and assign indirect costs to a distinct job.
1) The difference between the actual costing and normal costing methods is that actual costing uses a
budgeted indirect cost rate while normal costing uses an actual indirect cost rate.
2) In normal costing the budgeted or standard rate are the same.
3) Actual costing can also be a method of job costing.
4) Actual costing traces direct costs to a cost object by multiplying the budgeted direct cost rate and the
actual quantity.
5) At the end of the year, the direct costs traced to jobs using the budgeted rates will equal actual direct
costs.
6) A company may choose to use budgeted rates to allocate direct labour accounts if direct labour costs
are difficult to trace to jobs as they are completed.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
7) For normal costing, even though the budgeted indirect-cost rate is based on estimates, indirect costs are
allocated to products based on actual levels of the cost-allocation base.
8) Direct costs are traced the same way for actual costing and normal costing.
9) Normal costing refers to
A) the average cost.
B) costs within the relevant range.
C) costs that behave like other similar costs.
D) costs included in normal pools.
E) allocating indirect costs at standard rates.
10) Using normal costing the amount of supervisory salaries to allocate is determined by calculating
A) actual direct-cost rates times actual quantities of direct-cost inputs.
B) actual indirect-cost rates times actual quantities of cost-allocation bases.
C) actual direct-cost rates times budgeted quantities of input.
D) budgeted indirect-cost rates times actual quantities of cost-allocation bases.
E) none of the above.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
11) A machine shop has direct materials cost of $1,800,000 direct labour of $4,200,000 (direct labour rate is
$50 per hour) and budgeted indirect manufacturing costs of $850,000. Management believes that indirect
manufacturing costs increase with direct labour hours.
What is the budgeted indirect manufacturing cost rate?
A) $2.12
B) $2.33
C) $4.94
D) $10.12
E) $17.00
12) A local financial consulting firm employs 30 full-time employees. The budgeted compensation per
employee is $50,000. The annual maximum chargeable time to each client is 1,000 hours. Clients always
receive their full amount of time. All labour costs are included in a single direct-cost category and are
traced to jobs on a per-hour basis.
Any other costs are included in a single indirect-cost pool, allocated according to professional labour–
hours. Budgeted indirect costs for the year are $1,050,000, and the firm expects to have 60 clients during
the coming year.
What is the budgeted indirect-cost rate per hour?
A) $1,050.00 per hour
B) $50.00 per hour
C) $35.00 per hour
D) $17.50 per hour
E) $10.00 per hour
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
13) A local financial consulting firm employs 30 full-time staff. The budgeted compensation per employee
is $50,000, for 2,000 hours. All direct labour costs are charged to clients.
Any other costs are included in a single indirect-cost pool, allocated according to labour-hours. Actual
indirect costs were $750,000. Budgeted indirect costs for the year are $525,000 and the firm expects to
have 60 clients during the coming year.
What is the total cost of a job which took 27 hours, using normal costing?
A) $911.25
B) $1,012.50
C) $27,337.50
D) $30,375.00
E) $50,000.00
14) A company employs 25 full-time staff. The company spent $75,000 in advertising in the year (this
amount is a period cost with a constant amount spent each year). Budgeted indirect manufacturing costs
total $250,000 and the direct labour rate is $15 per hour. Budgeted labour hours were 500,000, and actual
labour hours were 524,000. Actual indirect overhead was $274,600.
What are the actual and normal indirect-cost rates respectively?
A) $0.52 and $0.50
B) $0.50 and $0.52
C) $0.55 and $0.48
D) $0.67 and $0.65
E) $0.65 and $0.67
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
15) Budgeted fixed indirect costs remain constant at $150,000 per month. During high–output months
variable indirect costs are budgeted at $120,000, and during low-output months budgeted variable costs
are $60,000. What are the respective high and low indirect cost rates if budgeted professional labour–
hours are 6,000 for high-output months and 2,000 for low-output months?
A) $31.25 per hour, $87.50 per hour
B) $45.00 per hour, $95.00 per hour
C) $45.00 per hour, $105.00 per hour
D) $56.20 per hour, $105.00 per hour
E) $59.00 per hour, $105.00 per hour
16) The main advantage of using budgeted cost rates rather than actual cost rates is
A) budgeted costs allow managers to have cost information on a timely basis.
B) budgeted costs may be subject to short-run fluctuations.
C) budgeted indirect-cost rates are known prior to the inception of a new job.
D) actual indirect-cost rates are affected by work done on other jobs.
E) budgeted rates are just as accurate and require less effort.
17) Which of the following statements about normal costing is true?
A) Direct costs and indirect costs are allocated using an actual rate.
B) Direct costs and indirect costs are traced using budgeted rates.
C) Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.
D) Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.
E) Direct costs are traced by using the actual direct-cost rate times the budgeted quantity of the direct
costs input.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
18) Which of the following is part of the approach to computing the budgeted indirect cost allocation
rate?
A) identify the costs which are part of the indirect cost pool
B) identify costs associated with the direct cost pool
C) estimate the cost items for direct cost pool
D) adjust the cost allocation base for variances
E) divide the total quantity of the cost allocation base into the total costs in the direct cost pool
Use the information below to answer the following question(s).
A dental office is in the process of changing their costing system. Their system currently uses a single
direct cost pool (professional labour) and a single indirect cost pool (staff support). The direct categories
in the new, refined costing system include:
1. Professional partner labour. Average total annual compensation of the two partners is $100,000 each,
and each partner has 2,000 hours of budgeted billable time.
2. Dental assistant labour. Average total annual compensation of the four assistants is $22,500 each, and
each assistant has 2,000 hours of budgeted billable time.
3. Office staff. Average total annual compensation of the two staff members is $15,000 each, and each
has 2,000 hours of budgeted billable time.
The indirect category in the new refined costing system includes professional liability insurance. The
budgeted indirect amount is $200,000, and the allocation base is budgeted professional labour hours. The
dentist and dental assistants are considered professional labour hours.
19) What is the budgeted indirect cost allocation rate per unit of the allocation base for the professional
liability insurance?
A) $16.67
B) $25.00
C) $1.67
D) $26.67
E) $12.50
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
20) What is the budgeted direct cost rate per hour for professional partner labour?
A) $25.00 per hour
B) $50.00 per hour
C) $44.50 per hour
D) $38.00 per hour
E) $46.00 per hour
21) What is the budgeted direct cost rate for dental assistant labour?
A) $17.875 per hour
B) $16.125 per hour
C) $13.750 per hour
D) $11.250 per hour
E) $9.125 per hour
22) What is the budgeted direct cost rate per hour for office staff?
A) $11.250 per hour
B) $9.625 per hour
C) $7.500 per hour
D) $6.875 per hour
E) $6.125 per hour
23) What would be the percentage change in the budgeted direct cost rate if they consider hiring one
more employee, as part of the office staff?
A) 3.0%
B) 2.0%
C) 1.0%
D) 0.5%
E) 0%
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
24) What would be the new budgeted direct cost rate if they decided to give all of the dental assistants a
10% raise?
A) $13.000 per hour
B) $12.375 per hour
C) $11.250 per hour
D) $9.875 per hour
E) $9.125 per hour
25) A Hospital uses a job cost system for all surgery patients. In February, the pre-operating room (PRE-
OP) and operating room (OR) had budgeted allocation bases of 1,000 nursing hours and 500 nursing
hours, respectively, and budgeted nursing overhead charges were $28,000 and $22,000, respectively. The
hospital floor for surgery patients had budgeted overhead costs of $200,000 and 2,500 nursing hours for
the month. PRE-OP, OR and the hospital floor have separate indirect cost pools. The hospital uses a
budgeted overhead rate for applying overhead to patient stays. For patient Jones, actual hours incurred
were six and eight hours, respectively, in the PRE-OP and OR rooms. He was in the hospital for 5 days
(120 hours). Other costs related to Jones were:
OR
Costs
In-room
Costs
Patient medicine
$500
$2,400
Direct nursing time
1,750
2,700
Required:
Determine the budgeted overhead rate for the hospital floor for surgery.
A) $28.00
B) $44.00
C) $45.75
D) $47.75
E) $80.00
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
Use the information below to answer the following question(s).
Jim’s Computer Products manufactures keyboards for computers. In June, the two production
departments had budgeted allocation bases of 10,000 machine hours in Department 1 and 5,000 direct
manufacturing labour hours in Department 2. The budgeted manufacturing overheads for the month
were $34,500 and $37,500, respectively. For Job 501, the actual costs incurred in the two departments were
as follows:
Department 1
Department 2
Direct materials purchased on account
$66,000
$106,500
Direct materials used
19,500
8,100
Direct manufacturing labour
31,500
32,100
Indirect manufacturing labour
6,600
5,400
Indirect materials used
4,500
2,850
Lease on equipment
9,750
2,250
Utilities
600
750
Job 501 incurred 1,000 machine hours in Department 1 and 300 manufacturing labour hours in
Department 2. The company uses a budgeted departmental overhead rate for applying overhead to
production.
26) What is the budgeted indirect cost allocation rate for Department 1?
A) $3.45 per hour
B) $3.75 per hour
C) $6.90 per hour
D) $7.50 per hour
E) $8.00 per hour
27) What is the budgeted indirect cost allocation rate for Department 2?
A) $3.45
B) $3.75
C) $4.60
D) $7.50
E) $8.00
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
28) What is the total cost assigned to Job 501 based on normal costing?
A) $27,600
B) $91,200
C) $96,900
D) $123,900
E) $126,500
29) XYZ Company uses a normal job costing system. The direct labour rate is $27 per hour; and, the
budgeted indirect cost allocation rate is $20 and uses direct labour hours as the cost allocation base.
Direct labour hours
1,000
Direct materials cost
$12,000
Marketing costs
$17,000
Non-manufacturing overhead
$9,000
What amount should be added to work-in-process control?
A) $12,000
B) $47,000
C) $59,000
D) $76,000
E) $85,000
30) In the service sector,
A) direct labour costs are always easy to trace to jobs.
B) a budgeted direct labour cost rate may be used to apply direct labour to jobs.
C) normal costing may not be used.
D) overhead is always applied using an actual cost allocation rate.
E) cost of goods sold includes beginning service inventory.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
31) Sara employs 25 professional cleaners. Budgeted costs total $900,000 of which $525,000 are direct
costs. Actual indirect costs were $396,900. Budgeted professional labour hours are 500,000 and actual
hours were 525,000. What is the budgeted direct cost assignment rate?
A) $1.80 per hour
B) $1.7857 per hour
C) $0.75 per hour
D) $1.05 per hour
E) $1.00 per hour
32) The difference between actual costing and normal costing is
A) normal costing uses actual direct cost rates.
B) actual costing uses actual quantities of direct cost inputs.
C) normal costing uses budgeted quantities of actual direct cost inputs and budgeted indirect cost rates.
D) actual costing uses actual quantities of cost allocation bases.
E) normal costing uses budgeted indirect cost rates.
Use the information below to answer the following question(s).
Capable Carts manufactures custom carts for a variety of uses. The following data have been recorded for
Job 892, which was recently completed. Direct materials used cost $6,300, the budgeted direct materials
were $5,900. There were 180 direct labour hours worked on this job at a direct labour wage rate of $20 per
hour; the budgeted direct labour wage rate was $21 per hour. There were 75 machine hours used on this
job. The budgeted and actual indirect cost allocation rates are $32 and $29 per machine hour used,
respectively.
33) What is the total manufacturing cost of Job 892 using normal costing?
A) $9,900
B) $12,300
C) $12,080
D) $12,255
E) $12,075
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
34) What is the total manufacturing cost of Job 892 using budget costing?
A) $9,900
B) $12,300
C) $12,080
D) $12,255
E) $12,075
35) What is the total manufacturing cost of Job 892 using actual costing?
A) $9,900
B) $12,300
C) $12,080
D) $12,255
E) $12,075
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
Use the information below to answer the following question(s).
World Engines Ltd. manufactures custom engines for use in the lawn and garden equipment industry.
The company allocates manufacturing overhead based on machine hours. Selected data for costs incurred
for Job 787 are as follows:
Direct materials used
$3,500
Direct labour hours worked
300
Machine hours used
400
Direct labour rate per hour
$16
Predetermined overhead rate based on machine hours
$18
Budgeted direct labour rate per hour
$20
Budgeted direct labour hours
310
Budgeted machine hours
370
Overhead rate based on actual indirect costs and actual
machine hours
$15
Direct materials budgeted
$3,900
36) What is the total manufacturing cost of Job 787 using normal costing?
A) $17,100
B) $14,960
C) $12,800
D) $15,500
E) $14,300
37) What is the total manufacturing cost of Job 787 using budget costing?
A) $17,100
B) $14,960
C) $12,800
D) $15,500
E) $14,300
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
38) What is the total manufacturing cost of Job 787 using actual costing?
A) $17,100
B) $14,960
C) $12,800
D) $15,500
E) $14,300
39) Beacon Company does residential real estate appraisals. There are 40 professionals on its staff. Each
professional is allotted the following number of hours per year:
Budgeted billable time for clients 1,800 hours
Budgeted vacation time 180 hours
Budgeted professional development 100 hours
Budgeted nonbillable time due to lack of demand 0 hours
Budgeted sick leave 120 hours
The company receives more jobs than it can handle and therefore rejects most out of town work. The
budgeted salary for each professional is $44,000 per year with fringe benefits of $11,000.
During the previous year, the actual salaries were $46,500, plus fringe benefits of $11,500.
Required:
a. What was the total budgeted direct cost rate if the company believes that clients should be charged
directly for its employees’ salaries and benefits?
b. What was the budgeted direct cost rate if the company wants to charge clients for employee vacation,
sick leave, and professional development as an indirect cost?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 4 – Job Costing
40) Landscape Architects provides landscape consulting services to clients that range from small
businesses to large corporations. The budgeted rate charged to customers for consulting per hour is $100.
The budgeted overhead for customer-support costs per hour is $45 and the budgeted other direct-cost
pool rate is $25 per hour. The budgeted hourly rates charged to jobs are $30 for the architect and $15 for
the assistants.
Jobs #200 and #201 for Sheridan College incurred 90 and 240 hours-respectively. Each job included one
licensed architect and two assistants. The architect worked 12 hours on Job #200 and 60 hours on Job #201.
Required:
a. Identify the cost objects.
b. Determine the costs of each job using budgeted overhead rates.