Job Costing System and Activity Based Costing for Voltus Communication

Introduction
Voltus Communication currently uses Job Costing System. Job Costing
system is one of the most simple methods of costing where the company
accumulates all the cost in the production in heads of direct material, direct
labour and manufacturing overheads and applies it evenly to the jobs of the
company using a single pre determined overhead rate for overheads which
can be machine hours, labour hours, labour cost or any other single means
for allocation (Bragg, 2019).
Voltus Communication is using machine hours as a means for computing
the pre-determined overhead rate for applying manufacturing overheads to
the jobs of the company. It is given that the company estimates the pre-
determined overhead rate using and estimated overheads for the year at
$3,600,000 and a total of 80,000 machine hour.
The pre-determined overhead rate for the company is computed as below:
Computation of Pre-Determined Overhead Rate
Total estimated overhead (A) $36,00,000
Total estimated machine hours (B) 80,000
Thus, pre-determined overhead rate (A/B) $45
Answer to part 1
Voltus communication worked a total of 73,000 machine hours from the
period 1 July 2018 to 31 May 2019. Considering the pre-determined
overhead rate of $45 per machine hour (as computed above), we can
compute the amount of manufacturing overhead that Voltus would have
applied for the period 1 July 2018 to 31 May 2019 as below:
Overhead Applied from 1 July 2018 to 31 May 2019
Pre-determined overhead rate $45
Machine Hours Worked 73,000
Total Overhead applied $32,85,000
Thus, amount of manufacturing overhead Voltus applied to jobs for the
period 1 July 2018 to 31 May 2019 is computed as $3,285,000.
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Answer to part 2
Voltus communication worked a total of 6,000 machine hours during June
2019. Considering the pre-determined overhead rate of $45 per machine
hour (as computed above), we can compute the amount of manufacturing
overhead that Voltus would have applied in June 2019 as below:
Overhead Applied in June 2019
Pre-determined overhead rate $45
Machine Hours Worked 6,000
Total Overhead applied $2,70,000
Thus, amount of manufacturing overhead Voltus applied to jobs during June
2019 is computed as $270,000.
Answer to part 3
Under job costing system, companies at the beginning estimates an
overhead for application of overheads to jobs and at the end they have
the actual overhead that have been incurred by the company. In a
situation, where the overhead applied by the company exceeds the
overhead actually incurred by the company, overheads are said to
have been over applied and vice versa for under applied overheads.
To compute the under or over application of overheads, we will
compute the total overhead applied by the company for the period 1
July 2018 to 30 June 2019 as below:
Total Overhead Applied
Overhead Applied from 1 July 2018 to 31 May
2019 $32,85,000
Overhead Applied in June 2019 $2,70,000
Total Overhead Applied
$35,55,00
0
The company during the year incurred overhead in heads of indirect
material, indirect labor, utilities and depreciation. The actual
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manufacturing overhead incurred by the company during the same
period 1 July 2018 to 30 June 2019 is computed as below:
Actual Overhead Incurred
Overhead Applied from 1 July 2018 to 31 May 2019 $33,00,000
Overhead Applied in June 2019 $2,88,000
Actual Mfg. Ohd. Incurred $35,88,000
Thus, we see that the total overhead incurred is more than the
overhead applied by the company, indicating that the overhead has
been under applied.
Under applied Overhead = $3,588,000 - $3,555,000
Under applied Overhead = $33,000
Thus, the manufacturing overhead has been under applied by
$33,000 as at 30 June 2019.
Answer to part 4
The overheads that have been either under applied or over applied
must be disposed off at the end of the financial year. The costing
methods allow us two distinct methods for this disposal. These
methods are:
1. Disposing it off with Cost of Goods Sold
This is the most common method for the treatment of over applied or
under applied overhead. Here, we simply write off the over applied or
under applied overhead with adjustments to cost of goods sold
account.
The underlying principle for this method is when the overheads are
over applied or under applied the cost of production is affected with
either an overstatement or understatement respectively. When we
adjust the over applied or under applied overhead with cost of goods
sold we actually equalize the cost of production for accuracy. Transfer
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