TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN
VIỆN ĐÀO TẠO TIÊN TIẾN, CHẤT LƯỢNG CAO VÀ POHE
ASSIGNMENT
SUBJECT: COST MANAGEMENT
Lecturer: PhD. Nguyen Thi Hong Tham
Credit class: QTTH1116E(224)CLC_01
Group members:
Phạm Linh Anh 11235334
Phạm Ngọc Linh Chi 11236387
Trần Minh Châu 11232582
Nguyễn Ngọc Minh 11235807
Võ Thị Thảo Vân 11236476
Contents
TASK....................................................................................................................................................3
SOLUTION..........................................................................................................................................5
Question 1 ( Linh Chi): Prepare an overview diagram of Pisano’s job-costing system....................5
Question 2 ( Minh Châu): What is the budgeted manufacturing overhead rate in the machining
department? In the finishing department?.........................................................................................6
Question 3 ( Thảo Vân): During the month of January, the job-cost record for Job 431 shows the
following:..........................................................................................................................................6
Question 4 ( Ngọc Minh) : Assuming that Job 431 consisted of 300 units of product, what is the
cost per unit?.....................................................................................................................................7
Question 5 ( Linh Anh): Amounts at the end of 2014 are as follows:...............................................7
Question 6 (Minh Châu): Why might Pisano use two different manufacturing overhead cost pools
in its job-costing system?..................................................................................................................8
REFERENCES:...................................................................................................................................9
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CHAPTER 4: JOB COSTING CASE STUDY
TASK
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:
Machining Finishing
Department Department
Manufacturing overhead costs $9,065,000 $8,181,000
Direct manufacturing labor costs $ 970,000 $4,050,000
Direct manufacturing labor-hours 36,000 155,000
Machine-hours 185,000 37,000
[Required]
1. Prepare an overview diagram of Pisano’s job-costing system.
2. What is the budgeted manufacturing overhead rate in the machining department? In the
finishing department?
3. During the month of January, the job-cost record for Job 431 shows the following:
Machining Finishing
Department Department
Direct materials used $13,000 $5,000
Direct manufacturing labor costs $ 900 $1,250
Direct manufacturing labor-hours 20 70
Machine-hours 140 20
Compute the total manufacturing overhead cost allocated to Job 431.
4. Assuming that Job 431 consisted of 300 units of product, what is the cost per unit?
5. Amounts at the end of 2014 are as follows:
Machining Finishing
Department Department 3
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?
SOLUTION
Question 1 ( Linh Chi): Prepare an overview diagram of Pisano’s job-costing system.
The job-costing system:
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o Is a cost accounting method used to determine and track the costs of each job or
specific order in the production process.
o This system is applied when products or services are produced according to customer
requirements or for specific projects, with costs and requirements unique to each
job.
Overview diagram of Pisano’s job-costing system
Explanation of the types of costs in the system:
Indirect Costs: These are costs that cannot be directly traced to a specific product. Pisano
Company divides indirect costs into two categories, each allocated based on different bases:
o Machining Department Indirect Costs: These are allocated based on machine hours
used in the machining department. The more machine hours used, the higher the indirect
costs for machining.
o Finishing Department Indirect Costs: These are allocated based on direct
manufacturing labor costs in the finishing department. This means the company uses
labor costs to distribute indirect costs in the finishing process.
Direct Costs: These are costs that can be directly traced to a product, including:
o Direct Materials: The materials used to make the product.
o Direct Labor: The labor costs for workers directly involved in making the product.
Finally, both indirect and direct costs are combined and allocated to specific jobs.
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In conclusion: The diagram helps Pisano Company to visualize how costs are allocated to jobs,
from indirect to direct costs. This enables Company to effectively manage and track costs while
accurately determining the cost of each product.
Question 2 ( Minh Châu): What is the budgeted manufacturing overhead rate in the
machining department? In the finishing department?
To calculate the budgeted manufacturing overhead rate for the machining and finishing departments,
we need to divide budgeted manufacturing overhead by allocation base:
a. Machining Department :
Manufacturing overhead costs $ 9,065,000
Overhead rate = = = $49 per machine-hour
Machine−hours 185,000 machine hours
b. Finishing department:
Manufacturing overhead costs $ 8,181,000
Overhead rate = = = 202% of direct manufacturing
Direct manufacturing labor costs $ 4,050,000
labor costs
Question 3 ( Thảo Vân): During the month of January, the job-cost record for Job 431
shows the following:
Machining Finishing
Department Department
Direct materials used $13,000 $5,000
Direct manufacturing labor costs $ 900 $1,250
Direct manufacturing labor-hours 20 70
Machine-hours 140 20
Compute the total manufacturing overhead cost allocated to Job 431.
Machine Department overhead= Machining Department x Machine-hour
= $49x140 hour= $6,860
Finishing Department overhead= Finishing Department x Direct manufacturing labor cost
= 202% of 1,250 = 2525
-> Total manufacturing overhead allocated
= Machine Department overhead + Finishing Department overhead
Total manufacturing overhead allocated : $9,385
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Question 4 ( Ngọc Minh) : Assuming that Job 431 consisted of 300 units of product,
what is the cost per unit?
We have the following equation: Total cost = Direct cost + Indirect cost
Direct cost:
- Direct materials:
Machining Department: $13,000
Finishing Department: $5,000
- Direct manufacturing labor costs:
Machining Department: $900
Finishing Department: $1,250
Indirect cost:
- Machining Department overhead: $49 x 140 = $6,860
- Finishing Department overhead, 202% of $1,250 = $2,525
Total cost: = $29.535
The per-unit product cost of Job 431 is: $29,535 : 300 units = $98.45 per unit
The point of this part is (a) to get the definitions straight and (b) to underscore that overhead is
allocated by multiplying the actual amount of the allocation base by the budgeted rate.
Question 5 ( Linh Anh): Amounts at the end of 2014 are as follows:
Machining Finishing
Department Department Compute
Manufacturing overhead incurred $10,000,000 $7,982,000 the
Direct manufacturing labor costs $ 1,030,000 $4,100,000 under- or
Machine-hours 200,000 34,000
overallocated manufacturing overhead for each department and for the Dover plant as a
whole.
Manufacturing overhead allocated ( Matching Department):
200,000 x $49 = $9,800,000
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-> Underallocated manufacturing overhead: $10,000,000 - $9,800,000 = $200,000
Manufacturing overhead allocated ( Finishing Department):
202% x $4,100,000= $8,282,000
-> Overallocated manufacturing overhead: 7,982,000 - 8,282,000 => $300,000
Total overallocated overhead = $300,000 – $200,000 = $100,000
Question 6 (Minh Châu): Why might Pisano use two different manufacturing
overhead cost pools in its job-costing system?
A homogeneous cost pool is one where all costs have the same or a similar cause-and-effect or
benefits-received relationship with the cost-allocation base. Pisano uses two different manufacturing
overhead cost pools in its job-costing system because the company likely assumes that all its
manufacturing overhead cost items are not homogeneous. The machining and finishing departments
have different overhead expenses and cost drivers. Specifically, overhead costs in the Machining
Department have a cause-and-effect relationship with machine-hours, while those in the Finishing
Department have a cause-and-effect relationship with direct manufacturing labor costs. Using
different allocation bases (machine-hours for machining and direct labor costs for finishing) helps
provide more accurate overhead costing and better reflect the actual overhead costs incurred by each
department. This enables the company to determine the real cost of each job, which in turn assists
management in pricing, product design, or other decision-making processes. Although this approach
is more complex to implement, Pisano believes that the benefits of using two cost pools (more
accurate product costs and better ability to manage costs) far outweigh the additional costs.
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REFERENCES:
1. Chapter 4: Job Costing, Horngren’s Cost Accounting: A Managerial Emphasis, 16th Edition
( Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan)
