a. Cost pool––a grouping of individual indirect cost items.

Cost-allocation base––a factor that links in a systematic way an indirect cost or group of indirect costs to cost o

In a job-costing system, costs are assigned to a distinct unit, batch, or lot of a product or service. The cost objec
b. multiple units of a distinct product or service which we call a job. Each job generally uses different amounts of r
In a process-costing system, the cost of a product or service is obtained by using broad averages to assign costs
identical or similar units. The cost object is masses of identical or similar units of a product or service. In this typ
we divide the total cost of producing an identical or similar product or service by the total number of units prod
obtain a per-unit cost.
c. 1. Identify the job that is the chosen cost object;
2. Identify the direct costs of the job;
3. Select the cost-allocation bases to use for allocating indirect costs to the job
4. Identify the indirect costs associated with each cost-allocation base;
5. Compute the rate per unit of each cost-allocation base used to allocate indirect costs to the job;
6. Compute the indirect costs allocated to the job; and
7. Compute the total cost of the job by adding all direct and indirect costs assigned to the job.
d. Actual costing and normal costing differ in their use of actual or
budgeted indirect cost rates:
Direct-cost rates
Indirect-cost rates

Each costing method uses the actual quantity of the direct-cost input and the actual quantity of the cost-allocati
 group of indirect costs to cost objects.

roduct or service. The cost object is a unit or

rally uses different amounts of resources.
g broad averages to assign costs to masses of
f a product or service. In this type of system,
y the total number of units produced to

ect costs to the job;

ned to the job.

Actual Normal
Actual Actual
Actual Budgeted

ctual quantity of the cost-allocation base.

1

= Budgeted manufacturing overhead cots / budgeted direct

manufacturing labor costs
= 2,700,000/1,500,000
1.8

Actual manufacturing overhead rate

= Actual manufacturing overhead cots / actual direct

manufacturing labor costs
= 2,755,000/1,450,000
1.9

2 Costs of Job CV610 under actual and normal costing will be

Actual Costing Normal Costing
Direct materials $ 40,000.00 $ 40,000.00
Direct manufacturing labor costs $ 30,000.00 $ 30,000.00
Manufacturing overhead costs
$30.000 x 1.90; $30.000 x 1.80 $ 54,000.00 $ 57,000.00
Total manufacturing costs of Job CV610 $ 124,000.00 $ 127,000.00

3
Total manufacturing overhead allocated under normal costing = actual manufacturing labor
costs x budgeted overhead rate
= 1,450,000 x 1.80
= 2,610,000
$ 2,610,000.00

Underallocated manufacturing overhead = actual manufacturing overhead costs -

manufacturing overhead allocated
= 2,755,000 - 2,610,000
= 145,000
$ 145,000.00

There is no under- or overallocated overhead under actual costing because overhead is

allocated under actual costing by multiplying actual manufacturing labor costs and the
actual manufacturing overhead rate. This, of course equals the actual manufacturing
overhead costs. All actual overhead costs are allocated to products. Hence, there is no under-
or overallocated overhead.
Step 1 - Recording actual purchases Actual rate
Raw material 372,100 Standard rate
Cash 372,100
Payroll 335,500 MOH Control
Cash 335,500
FOH Control 280,500
Cash 280,500

Step 2 - Costing
Actual Normal
WIP A 144,300
WIP B 89,600
WIP C 138,200
RM Inventory 372,100
same w/ actual
WIP A 62,525
WIP B 178,425
WIP C 94,550
Payroll 335,500

WIP A 52,275 WIP A 51,250

WIP B 149,175 WIP B 146,250
WIP C 79,050 WIP C 77,500
FOH Control 280,500 FOH Applied 275,000

Step 3 - Turn WIP into FG

FG A 259,100 FG A 258,075
FG B 417,200 FG B 414,275
FG C 311,800 FG C 310,250
WIP A 259,100 WIP A 258,075
WIP B 417,200 WIP B 414,275
WIP C 311,800 WIP C 310,250

Step 4 - FG into COGS

COGS 925,630 COGS 920,513
FG A 246,145 FG A 245,171
FG B 375,480 FG B 372,848
FG C 304,005 FG C 302,494

Cash 1,050,250 Cash 1,050,250

Sales 1,050,250 Sales 1,050,250

Adjustment using standard costing

COGS Method
FOH applied 275,000
COGS 13,100
DM var 2,100
DL var 5,500
FOH control 280,550
 25.5 2050
ndard rate 25 5850
3,100
11,000

Standard
WIP A 144,000
WIP B 90,000
WIP C 136,000
RM Inventory 370,000

WIP A 60,000
WIP B 180,000
WIP C 90,000
Payroll 330,000

WIP A 50,000
WIP B 150,000
WIP C 75,000
FOH Applied 275,000

FG A 254,000
FG B 420,000
FG C 301,000
WIP A 254,000
WIP B 420,000
WIP C 301,000

COGS 912,775
FG A 241,300
FG B 378,000
FG C 293,475

Cash 1,050,250
Sales 1,050,250

Proration Method
FOH applied 275,000
FG 836
COGS 12,264
DM var 2,100
DL var 5,500
FOH control 280,550
1

2
COGS of $4,020 does not include the write off of overallocated manufacturing overhead.
1 Materials Control 800
Accounts Payable Control 800
2 WIP Control 710
Materials Control 710
3 Manufacturing Overhead Control 100
Materials Control 100
4 WIP Control 1,300
Manufacturing Overhead Control 900
Wages Payable Control 2,200
5 Manufacturing Overhead Control 400
Accumulated depr. - buildings & eq 400
6 Manufacturing Overhead Control 550
Miscellaneous accounts 550
7 WIP Control 2080
Manufacturing Overhead Allocated 2080
(1.60 x $1.300 = $2.080)
8 Finished Goods Control 4,120
WIP Control 4,120
9 Accounts Receivable Control (or Cash) 8000
Revenues 8000
10 COGS 4020
Finisshed Goods Control 4020
11 Manufacturing Overhead Allocated 2080
Manufacturing Overhead Control 1950
COGS 130
3 Materials Control
Bal. 1/1/2014 100 2 WIP Control (materials used) 710
1 Accounts Payable Contr 800 3 Manufacturing Overhead Control 100
Bal. 12/31/2014 90

WIP Control
Bal. 1/1/2014 60 8 Finished Goods Control (goods 4120
2 Materials Control (DM) 710
4 Wages Payable Control 1300
7 Manufacturing Overhead 2080
Bal. 12/31/2014 30

Finished Goods Control

Bal. 1/1/2014 500 10 COGS 4020
8 WIP Control (goods com 4120

Bal. 12/31/2014 600

COGS
10 Finished Goods Control 4020 11 Manufacturing Overhead Allocate 130

Bal. 12/31/2014 3890

Manufacturing Overhead Control

3 Materials Control (indire 100 11 To close 1950
4 Wages Payable Control ( 900
5 Accum. Depr. Control (d 400
6 Accounts Payable Contro 550
Bal. 12/31/2014 0

Manufacturing Overhead Allocated

11 To close 2080 7 WIP Control (manuf overhead al 2080

Bal. 12/31/2014 0