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# ACCT19060 Concepts of Managerial Accounting-Annual Financial Report

Your friend has his own business (Sisulu Ltd). He is currently using job order costing and is applying a plant-wide overhead rate. At the beginning of March, Sisulu Ltd had two jobs in process: Job 24 and Job 25, with the following accumulated cost information:

 Items Job 24 \$ Job 25 \$ Direct materials 5 100 1 500 Direct labour 1 200 3 000 Applied overhead 780 1 950 Balance, 1 March 7 080 6 450

During March, two more jobs (26 and 27) were started. The following direct materials and direct labour costs were added to the four jobs during the month of March:

 Items Job 24 \$ Job 25 \$ Job 26 \$ Job 27 \$ Direct materials 2 500 7 110 1 800 1 700 Direct labour 800 6 400 900 560

At the end of March, Jobs 24, 25 and 27 were completed. Only Job 25 was sold. On 1 March, the balance in Finished Goods was zero.

Required:

1. Write a memo to your friend and explain the following short answer questions:
• What is a predetermined overhead rate and how is overhead cost assigned to production when a predetermined overhead rate is used
• What is a departmental overhead rate and a plant-wide overhead rate
• What is an overhead variance and how is it accounted for typically
• Is the cost of a job related to the price charged, and if so, how? Justify your answer.
Calculate the overhead rate based on direct labour costs (Note: round to three decimal places)Prepare a brief job-order cost sheet for the four jobs. Show the balance as of 1 March as well as direct materials and direct labour added in March. Apply overhead to the four jobs for the month of March and show the ending balances.Calculate the ending balances of Work in Process and Finished Goods as of 31 March.Calculate the Cost of Goods Sold for March.

1.a Depicting the predetermined overhead rate and how cost assigned to production when predetermined overhead rate is used:

Predetermined overhead costs are generally computed at the beginning of the period, which allows the manufacturing company to assign relative costs to each of its activities. In addition, the predetermined overhead costs is mainly calculated by dividing estimated manufacturing overhead cost by estimated total units in the allocation base (Chikoto & Neely, 2014).

Plant wide overhead rate is mainly used as a single rate, which could be allocated to all the company’s manufacturing overhead costs. This method is mainly used to accommodate all the indirect costs, which is related to manufacturing. This method is mainly used when maximum of the activities costs same.

Departmental overhead is mainly used to segregate the excess expenditure conducted on certain activities of the manufacturing company. This method mainly accommodates the high expenses, which needs to be incurred in certain activities, while it cannot be accommodated in total manufacturing overhead cost (Gneezy, Keenan & Gneezy, 2014).

1.c Depict the overhead variance and how it is accounted for:

Overhead variance is mainly derived by applied overhead with actual overhead the difference is mainly considered as overhead variance. Typically the actual overhead is mainly deduced from applied overhead, which is been used by the company. This mainly helps in identifying the relative effective measures taken by the company to identify the exact cost of manufacturing (Snyder & Davenport, 2013).

1.d Justifying the cost of job related to price charged:

Yes cost of job is mainly related to the price charged, as each job needs certain raw material and labour, which directly increases costs of the company. Jobs costing method is mainly based on the assigning relevant cost on each activity to identify the exact costs of production. Thus, it is justifiable that cost of each job is related to price charged (Lewis, 2013).

### Calculating the overhead rate based on direct labour cost:

For calculating the overhead rate, considering job 24 direct labours and applied overhead.

### Preparing job order cost sheet for four jobs:

 Particulars Job 24 Job 25 Job 26 Job 27 Beginnings Balance, 1 March (A) 7080 6450 0 0 Direct materials (B) 2500 7110 1800 1700 Direct labour (C) 800 6400 900 560 Applied overhead at the end of March (D) 520 4160 585 364 Ending Balance, 31st March E = (A+B+C+D) 10900 24120 3285 2624

### Calculating ending balance of Work in Process and Finished Goods as of 31 March:

Only Job 26 was not finished, which make the work in progress value to \$3285. In addition, from fished jobs 24, 25 and 27 only goods of job 27 was sold, which make Job 24 and Job 25 products as finished goods.

 Finished goods Amount Job 24 (A) 10900 Job 27 (B) 2624 Finished goods 31st march (C = A+B) 13524

## Reference

Brierley, J. A. (2017). Identifying the Influences on the Inclusion of Non-Manufacturing Overhead Costs in Product Costs. Advances in Business and Management, 11, 141-158.

Chikoto, G. L., & Neely, D. G. (2014). Building nonprofit financial capacity: The impact of revenue concentration and overhead costs. Nonprofit and Voluntary Sector Quarterly, 43(3), 570-588.

Gneezy, U., Keenan, E. A., & Gneezy, A. (2014). Avoiding overhead aversion in charity. Science, 346(6209), 632-635.

LeBlanc, S., Yee, S. K., Scullin, M. L., Dames, C., & Goodson, K. E. (2014). Material and manufacturing cost considerations for thermoelectrics. Renewable and Sustainable Energy Reviews, 32, 313-327.

Lewis, W. A. (2013). Overhead costs (Vol. 6). Routledge.

Öker, F., & Ad?güzel, H. (2016). Time?driven activity?based costing: An implementation in a manufacturing company. Journal of Corporate Accounting & Finance, 27(3), 39-56.

Plebankiewicz, E., & Le?niak, A. (2013). Overhead costs and profit calculation by Polish contractors. Technological and Economic Development of Economy, 19(1), 141-161.

Snyder, H., & Davenport, E. (2013). What does it really cost? Allocating indirect costs. Asian Libraries.