Pigot Corporation Uses Job Costing and Has Two Production Departments

question 119

Multiple Choice

Pigot Corporation uses job costing and has two production departments, M and A. Budgeted manufacturing costs for the year are as follows:
$$\begin{array} { l r r } & \text { Dept. M } & \text { Dept. A } \\\text { Direct materials } & \$ 700,000 & \$ 100,000 \\\text { Direct labor } & 200,000 & 800,000 \\\text { Factory overhead } & 600,000 & 400,000\end{array}$$
The actual direct materials and direct labor costs charged to Job. No. 432 during the year were as follows:
$\begin{array}{lrr} \text { Direct materials } &&\$25,000\\ \text { Direct labor: } &\\ \text {Department M } &\$8,000\\ \text {Department A } &\underline{12,000}&20,000\\\end{array}$


Pigot applies manufacturing overhead to production orders on the basis of direct labor cost using departmental rates predetermined at the beginning of the year based on the annual budget. The total cost associated with Job. No. 432 for the year should be:

• A) $50,000.
• B) $55,000.
• C) $65,000.
• D) $75,000.

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Definitions:

Opportunity Cost

The expense incurred by not choosing the second-best option when making a decision or selection.

Comparative Advantage

The capacity of an entity to generate a product or service with a smaller opportunity cost than others.

Absolute Advantage

The capacity of an entity to manufacture a product or provide a service more effectively than its rivals, by utilizing fewer resources.

Comparative Advantage

A principle in economics that asserts a country's ability to produce a good at a lower opportunity cost compared to another country, fostering global trade efficiency.