1. Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.
2. What is the difference between an actual cost system and a normal cost system?
3. Maddow Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Patterson High School Science Olympiad Jacket job.
Company Patterson High School Job
Direct materials $25,000 $500
Direct manufacturing labor $5,000 $100
Manufacturing overhead costs $20,000
Machine-hours 50,000 mh 800 mh
Required:
a. For Maddow Manufacturing, determine the annual manufacturing overhead cost-allocation rate.
b. Determine the amount of manufacturing overhead costs allocated to the Patterson High School job.
c. Determine the estimated total manufacturing costs for the Patterson High School job.
4. Hammond and Jarrett provide tax consulting for estates and trusts. Their job-costing system has a single direct-cost category (professional labor) and a single indirect-cost pool (research support). The indirect-cost pool contains all the costs except direct personnel costs. All budgeted indirect costs are allocated to individual jobs using actual professional labor-hours.
Required:
a. Discuss the reasons a consulting firm might use a normal costing system rather than an actual costing system.
b. What might be some reasons for the firm to change from a one-pool to a multiple-pool allocation concept?
5. A local engineering firm is bidding on a design project for a new client. The total budgeted direct-labor costs for the firm are $400,000. The total budgeted indirect costs are $600,000. It is estimated that there are 8,000 billable hours in total.
Required:
a. What is the budgeted direct-labor cost rate?
b. What is the budgeted indirect-cost rate assuming direct-labor cost is the allocation base?
c. What should be the engineering firm bid on the project if the direct labor hours are estimated at 300 hours?