Acct 3310 Zeigler - 4-17: Actual costing, Normal costing, acct for manufacturing overhead.

PRE-WORK: Always start with an overview diagram of the job-costing system

Budgeted manufacturing

1.

Budgeted manufacturing overhead rate

overhead costs Budgeted direct manufacturing labor costs

Budgeted O/H Rate equals =

$2, 700, 000 = 1.80 or 180% of Direct Labor Cost (or 180% DL$) $1,500, 000

Actual manufacturing overhead rate

Actual O/H Rate equals 2.

Actual manufacturing overhead costs Actual direct manufacturing labor costs $2, 755, 000 = 1.9 or 190% of Direct Labor Cost (or 190% DL$) $1, 450, 000

Costs of Job 626 under actual and normal costing follow: Actual Costing Normal Costing $ 40,000 30,000 54,000 $124,000

Direct materials Direct manufacturing labor costs Manufacturing overhead costs $30,000 1.90; $30,000 1.80 Total manufacturing costs of Job 626 3. Total manufacturing overhead allocated under normal costing =

$ 40,000 30,000 57,000 $127,000

Actual manufacturing Budgeted overhead rate labor costs

= $1,450,000 1.80 = $2,610,000 Underallocated manufacturing = overhead Actual manufacturing Manufacturing overhead allocated overhead costs

= $2,755,000 $2,610,000 = $145,000 Note: The source of the under-application (allocation) of overhead can be traced to the .10 differential O/H rate x the actual Direct Labor Cost of $1,450,000 = $145,000. For actual costing, there is no under/over allocated overhead because overhead is allocated by multiplying actual manufacturing labor costs by the actual manufacturing overhead rate. This, of course, equals the actual manufacturing overhead costs. All actual overhead costs are allocated to products at period-end. This is too late for management use. As such, Normal Costing, using budgeted (planned) information, will be emphasized going forward.