Question 1

Explain the difference between direct and indirect cost with special reference to cost assignment. (5 marks)

Happi Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

Department A Department B

Direct materials $700,000 $100,000

Direct manufacturing labour $200,000 $800,000

Manufacturing overhead $600,000 $400,000

The actual material and labour costs charged to Job #435 were as follows:

Total

Direct materials: $25,000

Direct labour:

Department A $ 8,000

Department B $12,000

$20,000

Happi applies manufacturing overhead costs to jobs on the basis of direct manufacturing labour cost using departmental rates determined at the beginning of the year.

Required:

What is the manufacturing overhead allocation rate for Department A? (2 marks)

What is the manufacturing overhead allocation rate for Department B? (2 Marks)

What amount of manufacturing overhead costs is allocated to Job #435? (3 marks)

What is the total manufacturing cost estimated for Job #435? (4 marks)

What other allocation basis could Happi use other than the Direct Manufacturing Labour cost? (4 marks)