Geronimo uses a job order costing system with a plant wide o

Geronimo uses a job order costing system with a plant wide overhead rate based on machine hours. At the beginning of the year, the company made the following estimates:

Machine hours required to support estimated production        200,000

Fixed manufacturing overhead cost RM 800,000

Variable manufacturing overhead cost per machine-hour           RM5.

Required:

a) Compute the company’s predetermined overhead rate

(2 marks)

b) During the year Job 555 was started and completed. The following information was available with respect to this job:

Direct materials requisitioned RM400

Direct labour RM280

Machine Hours Used         80

Compute the total manufacturing cost assigned to Job 555.

(4 marks)

c) Explain factors that should be considered in selecting a base to be used in computing the predetermined overhead rate?

(4 marks)

d) “Job-costing system can be applied in service firms like hospital and law firm”. Discuss.

(6 marks)

(Total: 20 marks)

Solution

a) Compute the company’s predetermined overhead rate

Predetermined overhead rate =Variable manufacturing overhead per machine-hour +  Fixed manufacturing overhead cost machine-hour

Fixed manufacturing overhead cost machine-hour=800,000/200000 =4

Predetermined overhead rate =5+4 =9 Per MH Hr

b Compute the total manufacturing cost assigned to Job 555.

v Explain factors that should be considered in selecting a base to be used in computing the predetermined overhead rate?