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Assignment Question(s):     [100 marks]

Salah Surf Boards makes custom boards for professional surfers. The boards vary according to the types of materials requested by customers and the amount of direct labor required for the finishing process.

The following costs are estimated for 20×5:

Number of surf boards 3,000

Direct labor hours 45,000

Direct material cost SAR 175,000

Direct labor cost SAR 900,000

Overhead cost SAR 675,000

During 20×5 actual costs were:

Number of surfboards 3,300

Direct labor hours 46,300

Direct materials SAR 185,000

Direct labor SAR 850,000

Overhead  SAR 664,000

a. Explain why job costing, and not process costing, should be used for this organization. [25 marks]

b. Salah uses a normal costing system. Overheard is allocated on the basis of direct labor hours. Calculate the manufacturing cost of a surfboard that takes SAR 150 of direct materials and 36 hours of direct labor. [25 marks]

c. At the end of 20×5, how much overhead had been allocated to production? [25 marks]

d. Is the overhead over or underapplied, and by how much? [20 marks]

e. Assume that any over or underapplied overhead is closed to cost of goods sold. Prepare the journal entry for the adjustment. [5 marks]