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produces tailor made statues based on the instructions about colors, size and design
received from each of its customers. The production process is semi-automated where the statue is
molded by a machine with limited manual support in the molding department and then hand painted
by a worker in the painting department with limited use of machines. The overhead in the molding
department is allocated to jobs based on machine hours and the overhead in the painting
department is allocated to jobs based on direct manufacturing labor costs.
LBJ Corp. uses a normal-costing system and had the following budgeted figures for 2017:
Molding Department Painting Department
Manufacturing Overhead 750,000 € 480,000 €
Machine hours (MH) 10,000 MH 690 MH
Direct Manufacturing labor costs 580,000 € 1,920,000 €
Required:
1. Explain the differences between job costing and process costing. Provide one example for
each costing method.
2. Distinguish between actual costing and normal costing. How can LBJ Corp. justify their
preference towards normal costing?
3. During March LBJ Corp.-´s most important customer ordered Job 36 with the following
resources involved:
Molding Department Painting Department
Direct Materials 8,105 € 1,200 €
Direct Manufacturing labor costs 6,440 € 22,080 €
Machine hours (MH) 109 MH 8 MH
Assuming that Job 36 was composed of 460 statues, calculate total cost per statues.
4. At the end of 2017, the actual manufacturing overhead costs incurred were 745,200 € in the
Molding Department and 499,350 € in the Painting department. If 10,050 actual machine
hours were used in the Molding department and 1,987,200 € direct manufacturing labor costs
were incurred in the Painting department, compute the over or under allocation of
manufacturing overhead for each department and in total.
5. Assume at the end of 2017, work-in-progress inventory, finished goods inventory and cost of
goods sold accounts show the following balances: 400,000 €, 1,000,000 €, and 10,000,000 €,
respectively. And the portion of manufacturing overhead costs included in work-in-progress
inventory, finished goods inventory and cost of goods sold is as follows: 200,000 €, 400,000
€, and 4,500,000 €, respectively.
Allocate the total over or under allocated manufacturing overhead costs using the prorate
approach.
1
EXERCISE 2. The Pisano Company uses a job-costing system at its Dover, Delaware, plant.
The plant has a machining department and a finishing department. Pisano uses normal costing
with two direct-cost categories (direct materials and direct manufacturing labor) and two
manufacturing overhead cost pools (the machining department with machine-hours as the
allocation base and the finishing department with direct manufacturing labor costs as the
allocation base). The 2014 budget for the plant is as follows:
[Required]
Machining Finishing
Department Department
Manufacturing overhead incurred $10,000,000 $7,982,000
Direct manufacturing labor costs $ 1,030,000 $4,100,000
Machine-hours 200,000 34,000
Compute the under- or overallocated manufacturing overhead for each department and
for the Dover plant as a whole.
6. Why might Pisano use two different manufacturing overhead cost pools in its job-costing
system?