Question

Heitger Company is a job-order costing firm that uses activity-based costing to apply overhead to jobs. Heitger identified three overhead activities and related drivers. Budgeted information for the year is as follows:
Activity Cost Driver Amount of Driver
Materials handling $60,500 Number of moves 2,500
Engineering 116,900 Number of change orders 7,000
Other overhead 266,800 Direct labor hours 46,000
Heitger worked on four jobs in July. Data are as follows:
Job 13-43 Job 13-44 Job 13-45 Job 13-46
Beginning balance $22,800 $20,000 $2,900 $0
Direct materials $5,300 $10,000 $11,700 $10,500
Direct labor cost $930 $960 $1,670 $140
Number of moves 40 53 30 4
Number of change orders 31 44 16 20
Direct labor hours 930 960 1,670 140
By July 31, Jobs 13-43 and 13-44 were completed and sold. Jobs 13-45 and 13-46 were still in process.
Required:
1. Calculate the activity rates for each of the three overhead activities.
2. Prepare job-order cost sheets for each job showing all costs through July 31.
3. Calculate the balance in Work in Process on July 31.
4. Calculate the cost of goods sold for July.
5. What if Job 13-46 required no engineering change orders? What is the new cost of Job 13-46? How would the cost of other jobs be affected?

Answer 1

Answer:

Heitger Company

1. Calculation of the activity rates for each of the three overhead activities:

Activity                      Cost        Driver                                Amount   Activity                                                                                      

                                                                                          of Driver      Rate

Materials handling $60,500   Number of moves              2,500     $24.20

Engineering             116,900   Number of change orders 7,000      $16.70

Other overhead     266,800   Direct labor hours           46,000       $5.80

Activity rate = Activity Cost/Amount of Driver

2. Job-order cost sheets through July 31:

                                           Job 13-43   Job 13-44   Job 13-45   Job 13-46

Beginning balance              $22,800    $20,000     $2,900      $0

Direct materials                     $5,300     $10,000     $11,700      $10,500

Direct labor cost                       $930         $960       $1,670           $140

Manufacturing overhead       $6,413.70 $7,585.40 $10,579.2   $1,242.8

Production costs                $35,443.70 $38,545.40 $26,849.20 $11,882.80

3. Balance in Work in Process:

                                              Job 13-45     Job 13-46

Beginning balance                 $2,900           $0

Direct materials                      $11,700        $10,500

Direct labor cost                      $1,670              $140

Manufacturing overhead     $10,579.2        $1,242.8

Production costs                $26,849.20      $11,882.80

Total balance in Work in Process = $38,732.00

4. Cost of Goods Sold for July:

                                           Job 13-43        Job 13-44

Beginning balance              $22,800         $20,000

Direct materials                     $5,300          $10,000

Direct labor cost                       $930              $960

Manufacturing overhead       $6,413.70      $7,585.40

Production costs                $35,443.70     $38,545.40

Total cost of goods sold = $73,989.10

5. Engineering overhead cost of $267.20 will be deducted from the total production cost to date of Job 13-46 ($11,882.80 - 267.20) to arrive a new production cost to date of $11,615.60.

There is no obvious effect on other jobs, until more information is provided as to the budgeted change orders and engineering cost for Job 13-46.  That is when the activity rate may change.

Explanation:

a) Data and Calculations:

Job-order costing

Uses activity-based costing to apply overhead to jobs

Three overhead activities and related drivers.

Budgeted information for the year:

Activity                      Cost        Driver                                Amount Activity                                                                                      

                                                                                          of Driver    Rate

Materials handling $60,500   Number of moves              2,500      $24.20

Engineering             116,900   Number of change orders 7,000      $16.70

Other overhead     266,800   Direct labor hours           46,000       $5.80

Data for Jobs worked in July:

                                           Job 13-43   Job 13-44   Job 13-45   Job 13-46

Beginning balance              $22,800    $20,000     $2,900      $0

Direct materials                     $5,300     $10,000     $11,700      $10,500

Direct labor cost                       $930         $960       $1,670           $140

Manufacturing overhead       $6,413.70 $7,585.40 $10,579.2   $1,242.8

Production costs                $35,443.70 $38,545.40 $26,849.20 $11,882.80

Number of moves                      40              53            30                 4

Number of change orders         31               44            16               20

Direct labor hours                     930             960       1,670            140

Allocation of overheads            Job 13-43  Job 13-44  Job 13-45  Job 13-46

Number of moves              $24.20  $968    $1,282.60  $726.00      $96.80

Number of change orders    16.70     517.70     734.80    267.20      334.00

Direct labor hours                 5.80 5,394.00   5,568      9,686            812.00

Total overhead allocated             $6,413.70 $7,585.40 $10,579.2 $1,242.8