TUTORIAL 5: JOB AND Batch Costing

Section A
Question 1
Job No.909 was completed in three departments of a factory. Costs details for this job were:
Department Direct Direct Direct labour
materials wages hours
(RM) (RM)
X 650 800 1,000
Y 940 300 400
Z 230 665 700

The production overheads are absorbed into the jobs using predetermined departmental
overhead absorption rates based on the direct labour hours. The administrative overhead is
absorbed as a percentage of production cost.

The figures for the last cost period for the three departments on which the current overhead
recovery rates are base were as follows:

Department X Y Z
Direct materials (RM) 6,125 11,360 25,780
Direct wages (RM) 9,375 23,400 54,400
Direct labour hours 12,500 36,000 64,000
Production overheads (RM) 5,000 7,200 9,600
Administrative overheads (RM) 2,870 14,686 8,978

Required:
Prepare a cost card showing the cost of Job No.909 and to show the price charged, assuming
a profit margin of 20%.

Question 2
Cee Sdn. Bhd. has three production departments. It has been using a single production
overhead absorption rate, expressed as a percentage of direct wages for many years. In recent
years, it has invested heavily in machinery especially for Department A. The managing
director has learned that departmental absorption rates would result in more accurate job
costs. He seeks your opinion to calculate an overhead absorption rate for each department.
The following are the budgeted and actual data for December 2019:

Department Direct Wages Direct labour Machine hours Production

(RM) hours overhead cost
(RM)
Budget:
Department: A 10,000 4,000 20,000 100,000
B 40,000 20,000 5,000 28,000
C 20,000 20,000 - 12,000
Total 70,000 44,000 25,000 140,000

Actual:
Department: A 12,000 4,100 19,000 110,000
B 46,000 22,000 4,800 24,000
C 18,000 19,000 - 13,000
 Total 76,000 45,100 23,800 147,000

Required:
(a) Calculate the current production overhead absorption rate (OAR).

(b) Calculate an appropriate overhead absorption rate (OAR) for each of the departments
and briefly explain the reason(s) for your choice of the absorption basis.

(c) During December 2019, one of the jobs, Job P007 incurred the following costs and
hours in the department:
Direct Direct Direct Machine
materials wages labour hours hours
(RM) (RM)
Department: A 400 66 22 100
B 110 160 80 25
C 50 25 25 -

The company uses a mark-up of 25% as gross profit.

(i) Calculate the production cost and gross profit for Job P007 using the current
absorption rate.

(ii) Calculate the production cost and gross profit for Job P007 using the departmental
overhead absorption rate calculated in part (b).

(d) Calculate the over/ (under) absorption for each of the departments for the period using
the current absorption rate.

(e) Calculate the over/(under) absorption for each of the departments for the period using
the departments for the period using the departmental overhead absorption.

Question 3 (Batch Costing)

Iris Sdn. Bhd. produces and sells barbie dolls. The following costs have been incurred for an order of
600 dolls for the Batch No. 123 during March 2019:
Direct
: RM22,000
materials
Direct labour:
Assembly : 200 hours at RM4.50 per hour
Machining : 350 hours at RM6.00 per hour
Finishing : 140 hours at RM4.00 per hour

The following information shows the budgeted production overheads for the year 2019 based on the
budgeted activity levels:
Production Budgeted Budgeted activity
 production
departments overheads (RM) level (labour hours)
Assembly 14,000 2,800
Machining 22,000 4,000
Finishing 12,000 2,500

Selling and administrative overheads are 20% of production cost.

The company sets a profit margin of 20% to determine the budgeted selling price.

Required:

(a) Calculate the total cost of Batch No.123, the unit cost and the selling price per unit.

(b) Explain ANY THREE (3) reasons why companies calculate pre-determined
overheads absorption rates.

Question 4 (Services Costing)

Jessie Owens Bhd. is a haulage contractor and operates three tow trucks. The following
information is available:
 
● Loading costs: RM9 per tonne
● Fuel costs: RM0.75 per kilometre
● Repair costs: 45 cents per kilometre
● Depreciation: RM1.50 per kilometre plus RM150 per month per vehicle
● Drivers’ wages: RM900 per month per vehicle
● Supervision expenses: RM1,000 per month
● General expenses: RM650 per month

During the month of June, it is expected that all the three tow trucks will be fully utilised. A
total of nine trips will be made. The return journey will be empty. For trips 1 to 9 the tonnes
carried are 68, 56, 80, 64, 52, 80, 58, 52, 50 respectively. The kilometres travelled one way
for trips 1 to 9 are 720, 1060, 1560, 460, 880, 1920, 360, 400 and 540 respectively.
 
Required:
Calculate the total cost and average cost per tonne – kilometre for the month of June.