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Hello Sir,
I would like some help regarding this question. Has this been covered in the lectures? If so, im not sure where i missed it. If you could let me know that would be great!
My doubt in this question 10.5 is if the overheads in the work in progress should be split according to the ratio of labour for the period or in the OAR percentage. I tried both methods and they each gave me a different answer OR Im just doing it wrong- Im not sure.
A firm makes special assemblies to customers’ orders and uses job costing. The data for a period are:
Job (AA10) Job (BB15) Job (CC20)Opening WIP? 26,800 42,790 0
Material added in period? 17,275 0 18,500
Labour for period? 14,500 3,500 24,600The budgeted overheads for the period were $126,000.?
Job number BB15 was completed on the last day of the period.10.4 What overhead should be added to job number CC20 for the period?
A $65,157
. B $69,290 ?
. C $72,761 ?
. D $126,000 ?10.5 What was the approximate value of closing work-in-progress at the end of the period?
. A $58,575 ?
. B $101,675 ?
. C $217,323 ?
. D $227,675Any help is appreciated.
Thank you, NidhiThe question is one of how to absorb the overheads.
There is no rule about how overheads should be absorbed (and usually you will be told in questions how to absorb them), however since we only know about the cost of materials and the cost of labour, the only really sensible way is to absorb them on the basis of the labour cost.The total labour cost = 14,500 + 3,500 + 24,600 = 42,600
Therefore the overhead absorption rate will be 126,000 / 42,600 = $29.57746 per $ of labour.So for CC20, the overheads will be 24,600 x $29.57746 = $72,761
Hello Sir,
Thanks for the reply. I get it!
I have a huge problem with relevant and Non-relevant costs. I cannot seem to differentiate between them correctly. Any tips or lectures I may have missed to understand it??
Nidhi
Please start a new thread when you are asking about a different topic – this has nothing to do with costing.
Relevant costs are future, incremental (i.e. extra), cash flows to the business.
So non-relevant costs are things like depreciation (not a cash flow), money already spent (so not a future flow), and costs to the business that do not change as a result of the new investment.What was the value of closing work in progress at the end of the period of job AA10?
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