(J. Watson) Kalor Ltd. uses a normal job-costing system with two direct cost categories, direct materials and direct labour, and one indirect cost pool.
Manufacturing overhead is allocated based on direct labour costs. Any overallocated or underallocated overhead is written off to Cost of Goods Sold. Each product goes through two departments, Fabrication and Assembly. The Fabrication process is automated whereas the Assembly Department is highly labour intensive. Kalor’s budget for 2013 was as follows:
Kalor started the year without any work-in-process. During the year it had the following results:
At December 31, 2013, the company had only two jobs still in process, #Z438 and #Q917. Job #Z438 had $7,000 of direct materials and $1,500 of direct labour and had used 3,400 MH in fabrication. It had not yet been transferred to the Assembly Department. Job #Q917 had incurred $4,000 and $6,000 of direct materials costs in Fabrication and Assembly, respectively. It had used 1,800 MH in Fabrication and 800 MH in Assembly. Labour charges in the two departments were $9,000 and $18,000 for Fabrication and Assembly, respectively.
1. Calculate Cost of Goods Manufactured for the year ended December 31, 2013, assuming the company uses its current overhead costing method.
2. Under the current costing system, what is the amount of overallocated or underallocated overhead?
3. What would be the amount of overallocated or underallocated overhead at the end of the year if the company had used departmental overhead rates with the most appropriate base for each department?

  • CreatedJuly 31, 2015
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