Jati Sdn Bhd (JSB) makes custom made furniture from quality woods. The company uses a joborder costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. Currently, JSB uses a plantwide overhead rate based on direct labor costs in estimating the company manufacturing overhead. The following estimated data have been made by JSB at the beginning of the year 2020: Department Costs Designing Machining Furnishing Direct labor hours 30,000 60,000 40,000 Machine hours 20,000 40,000 30,000 Direct labor costs RM150,000 RM100,000 RM200,000 Direct materials costs RM190,000 RM400,000 RM250,000 Manufacturing overhead costs RM270,000 RM400,000 RM50,000 Job J12 was started on 1 January 2020 and completed on 31 March 2020. JSB’s cost records shown the following information on the Job J12: Department Costs Designing Machining Furnishing Direct labor hours 2,500 1,700 1,200 Machine hours 1,500 3,200 2,000 Direct labor costs RM12,000 RM18,500 RM15,000 Direct materials costs RM15,000 RM26,000 RM12,800 Manufacturing overhead costs RM25,000 RM40,000 RM30,000 However, recently, you as the plant manager have heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. In implementing this new overhead rate base, the predetermined overhead rate in the Designing Department will be based on direct labor hours; Machining Department will be based on machine hours; and the rate in the Furnishing Department will be based on direct labor costs. REQUIRED: (a) If JSB uses a plantwide overhead rate: (i) Calculate the predetermined overhead rate for the year 2020. (ii) Determine the total of manufacturing overhead cost applied to Job J12. BKAM2013 TUTORIAL 2 (TOPIC 4: JOB ORDER COSTING) 6 (b) If JSB uses departmental overhead rate: (i) Calculate the predetermined overhead rate for each department for the year 2020. (ii) Determine the total of manufacturing overhead cost applied to Job J12. (c) Between the plantwide rate in part (a) (ii) and the departmental rate in part (b) (ii) above, which manufacturing overhead rate would you recommend to be applied for Job J12? Justify your answer.
Jati Sdn Bhd (JSB) makes custom made furniture from quality woods. The company uses a joborder costing system and predetermined overhead rates to apply
jobs. Currently, JSB uses a plantwide overhead rate based on direct labor costs in estimating the
company manufacturing overhead. The following estimated data have been made by JSB at the
beginning of the year 2020:
Department
Costs Designing Machining Furnishing
Direct labor hours 30,000 60,000 40,000
Machine hours 20,000 40,000 30,000
Direct labor costs RM150,000 RM100,000 RM200,000
Direct materials costs RM190,000 RM400,000 RM250,000
Manufacturing overhead costs RM270,000 RM400,000 RM50,000
Job J12 was started on 1 January 2020 and completed on 31 March 2020. JSB’s cost records shown
the following information on the Job J12:
Department
Costs Designing Machining Furnishing
Direct labor hours 2,500 1,700 1,200
Machine hours 1,500 3,200 2,000
Direct labor costs RM12,000 RM18,500 RM15,000
Direct materials costs RM15,000 RM26,000 RM12,800
Manufacturing overhead costs RM25,000 RM40,000 RM30,000
However, recently, you as the plant manager have heard that departmental overhead rates can offer
significantly better cost assignments than a plantwide rate can offer. In implementing this new
overhead rate base, the predetermined overhead rate in the Designing Department will be based
on direct labor hours; Machining Department will be based on machine hours; and the rate in the
Furnishing Department will be based on direct labor costs.
REQUIRED:
(a) If JSB uses a plantwide overhead rate:
(i) Calculate the predetermined overhead rate for the year 2020.
(ii) Determine the total of manufacturing overhead cost applied to Job J12.
BKAM2013 TUTORIAL 2 (TOPIC 4:
6
(b) If JSB uses departmental overhead rate:
(i) Calculate the predetermined overhead rate for each department for the year 2020.
(ii) Determine the total of manufacturing overhead cost applied to Job J12.
(c) Between the plantwide rate in part (a) (ii) and the departmental rate in part (b) (ii) above,
which manufacturing overhead rate would you recommend to be applied for Job J12?
Justify your answer.
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