Chapter 2 Job Order Costing
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Case Study
CS-1 LO XXXXXXXXXX
MW Clothing is a machine-intensive manufacturing company that produces clothes for many different
etailers. The company recently finished working on an order from a customer, which consisted of 50 blue
colored jeans with specifications of a 32-inch waist and 32-inch length. The following cost data relate to the
manufacturing activities of MW Clothing for this order.
Direct Materials $5,000
Direct Labor 2,300
Indirect Materials 500
Indirect Labor 1,000
Salaries, Administrative staff 10,000
Insurance, factory 150
Depreciation, factory 750
Utilities, factory 1,400
Direct Labor Hours 200 hours
Machine Hours 1,500 hours
*Factory insurance, depreciation and utilities’ costs are considered indirect manufacturing overhead costs
equired
a) Why would job order costing be suitable to calculate the cost of this order?
) Calculate the total manufacturing overhead costs incu
ed by the company.
c) At the beginning of the year, the company estimated that it would incur a total of $50,000 in manufacturing overhead
costs, 2,800 direct labor hours, and 20,000 machine hours. The company uses predetermined overhead rates to apply
overhead costs to production. Calculate the predetermined overhead rate for the company using direct labor hours
as an allocation base.
d) Calculate the predetermined overhead rate for the company using machine hours as an allocation base.
Chapter 2Job Order Costing
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e) Calculate the total overhead cost that will be allocated to this job, using the predetermined overhead rates
calculated in both part c) and d).
f ) Which allocation base results in a smaller variance between actual and estimated manufacturing overhead?
Which allocation base should the company use to calculate the predetermined overhead rate? Explain why.
g) How would we account for the underallocation of manufacturing under the cost of goods sold method?