Chapter 2 Job Order Costing 38 Case Study CS-1 LO XXXXXXXXXX MW Clothing is a machine-intensive manufacturing company that produces clothes for many different retailers. The company recently finished...

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CH 2 CS-1 on Worksheet PDF 38-39

Chapter 2 Job Order Costing 38 Case Study CS-1 LO 1 2 3 4 MW Clothing is a machine-intensive manufacturing company that produces clothes for many different retailers. The company recently finished working on an order from a customer, which consisted of 50 blue colored jeans with specifications of a 32-inch waist and 32-inch length. The following cost data relate to the manufacturing activities of MW Clothing for this order. Direct Materials $5,000 Direct Labor 2,300 Indirect Materials 500 Indirect Labor 1,000 Salaries, Administrative staff 10,000 Insurance, factory 150 Depreciation, factory 750 Utilities, factory 1,400 Direct Labor Hours 200 hours Machine Hours 1,500 hours *Factory insurance, depreciation and utilities’ costs are considered indirect manufacturing overhead costs required a) Why would job order costing be suitable to calculate the cost of this order? b) Calculate the total manufacturing overhead costs incurred by the company. c) At the beginning of the year, the company estimated that it would incur a total of $50,000 in manufacturing overhead costs, 2,800 direct labor hours, and 20,000 machine hours. The company uses predetermined overhead rates to apply overhead costs to production. Calculate the predetermined overhead rate for the company using direct labor hours as an allocation base. d) Calculate the predetermined overhead rate for the company using machine hours as an allocation base. Chapter 2Job Order Costing 39 e) Calculate the total overhead cost that will be allocated to this job, using the predetermined overhead rates calculated in both part c) and d). f ) Which allocation base results in a smaller variance between actual and estimated manufacturing overhead? Which allocation base should the company use to calculate the predetermined overhead rate? Explain why. g) How would we account for the underallocation of manufacturing under the cost of goods sold method?