Job Costing vs Activity Based Costing

For, Concetta Ltd.
Answer to Question 1:
Job Costing System or the Job order costing method of costing that
accumulates all the manufacturing costs and assigns them to the output
produced. It is generally used when the company produces different types of
products and all of them have significant cost. In other words, companies
have different jobs, each with different cost and different set of output.
Companies which work on customized products uses job costing as each
order is completely different and treated as one job. For example companies
that manufacture aircrafts, construction companies, or companies that
produces specialized and customized clothing, furniture’s can use job
costing system.
Answer to Question 2:
The company had 3 open jobs in November 30 and completed some during
the month. The ending WIP for the company on December 31 can be
computed as below:
For Concetta Ltd
Job
No.
Opening WIP -
30 November
Completed and
transferred
Closing WIP -
December 31
CC723 20,000 20,000 0
CH291 15,000 15,000 0
PS812 25,000 0 25,000
(Ending WIP = Opening WIP – Units Completed and Transferred Out)
Thus, the company had only one Job namely PS812 which is Printer stand
for a total WIP quantity of 25,000 units as on December 31. The ending WIP
cost of the job will be opening WIP plus the additions made to the job in the
month of December.
For this, we will need to compute the pre-determined overhead rate as we
will have to allocate the overhead for the job. The predetermined overhead
rate for the company is computed as under:

Working Note 1 - For Concetta Ltd
Computation of pre-determined Overhead Rate
Total manufacturing overhead budget $45,00,00
0
Total Machine Hours 9,00,000
Therefore, pre-determined overhead
rate
(Total Overhead / Total Machine
Hours)
$5
Based on this, the cost of the ending WIP job as on 31 December can be
computed as below:
For Concetta Ltd
Computation of Ending WIP - 31/12
Particulars Amount Amount
Opening Balance as on 11/30 $2,50,000
Add: Additions in December
Raw Material $1,24,000
Purchased Parts $87,000
Labour Cost $2,00,500
Manufacturing Overhead
(19,500 mc hrs * $5/hr) (WN -1) $97,500 $5,09,000
Ending Balance as on 12/31 $7,59,000
Thus, the balance in Concetta’s WIP inventory as at 31, December is
$759,000.
Answer to Question 3:
To compute the cost of the chairs in Concetta’s finished goods inventory, we
will compute the finished goods inventory of the chairs as on 31 December.
For Concetta Ltd
Units of Chair in Finished Goods as on 12/31
Particulars Amount
Finished goods inventory as on 11/30 (A) 19,400
Add: Units Completed during the month (B) 15,000
Units available for sale (A+B) 34,400
Less: No. of units sold during the month 21,000
Thus, Ending inventory 12/31
(Units Available - Sales) 13,400

Thus, the company had 13,400 units of chairs as on 31 December.
Assuming that the company uses FIFO (First-In First-Out) method, the
ending inventory must be from the units that have been completed during
the month. We will now compute the cost of the units that have been
completed during the month as below:
For Concetta Ltd
Units of Chairs Completed in December
Particulars Amount Amount
WIP Inventory as on 11/30 $4,31,000
Add: Additions in December
Raw Material $3,000
Purchased Parts $10,800
Labour Cost $43,200
Manufacturing Overhead
(4,400 mc hrs * $5/hr) (WN -1) $22,000 $79,000
Total Cost of the Chairs in the month $5,10,000
Based on the above, per unit cost of the chair is as below:
For Concetta Ltd
Per unit cost of Chairs Produced
Total Chairs Manufactured during the
month 15,000
Total Cost of the Chairs in the month $5,10,00
0
Per unit cost $34
Since, the ending inventory of chairs is from these produced units, the cost
of the chairs in the finished goods inventory is:
For Concetta Ltd
Value of Finished Goods Inventory
Per unit cost $34
Ending inventory 12/31 $13,400
Value of Finished Goods Inventory $4,55,600
Thus, the cost of the chairs in Concetta’s Finished Goods Inventory as
at December 31 is $455,600.