Bergeron's Fine Furnishings manufactures upscale custom furniture. Bergeron's currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,450,000 of manufacturing overhead to individual jobs. However, Donna Donaldson, owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $730,000 of manufacturing overhead while the Finishing Department incurs $720,000 of manufacturing overhead. Donaldson has identified machine hours (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing Department.
Bergeron's Fine Furnishings manufactures upscale custom furniture. Bergeron's currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,450,000 of manufacturing overhead to individual jobs. However, Donna Donaldson, owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $730,000 of manufacturing overhead while the Finishing Department incurs $720,000 of manufacturing overhead. Donaldson has identified machine hours (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing Department.
Chapter1: Financial Statements And Business Decisions
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
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owner and CEO, is considering refining the company's costing system by using departmental
attache in ss below
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Transcribed Image Text:More info
The Bergeron's plant completed Jobs 450 and 455 on May 15. Both jobs
incurred a total of 7 DL hours throughout the entire production process. Job 450
incurred 2 MH in the Machining Department and 6 DL hours in the Finishing
Department (the other DL hour occurred in the Machining Department). Job 455
incurred 6 MH in the Machining Department and 5 DL hours in the Finishing
Department (the other two DL hours occurred in the Machining Department).
Print
Done
X
Requirements
1. Compute the plantwide overhead rate assuming that Bergeron's expects to incur 25,000 total DL
hours during the year.
2. Compute departmental overhead rates assuming that Bergeron's expects to incur 14,800 MH in
the Machining Department and 18,000 DL hours in the Finishing Department during the year.
3. If Bergeron's continues to use the plantwide overhead rate, how much manufacturing overhead
would be allocated to Job 450 and Job 455?
4. If Bergeron's uses departmental overhead rates, how much manufacturing overhead would be
allocated to Job 450 and Job 455?
5. Based on your answers to Requirements 3 and 4, does the plantwide overhead rate overcost or
undercost either job? Explain. If Bergeron's sells its furniture at 125% of cost, will its choice of
allocation systems affect product pricing? Explain.
X
Transcribed Image Text:Bergeron's Fine Furnishings manufactures upscale custom furniture. Bergeron's currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,450,000 of manufacturing overhead to individual jobs. However, Donna Donaldson, owner and CEO, is considering refining
the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $730,000 of manufacturing
manufacturing overhead
t driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing De overhead while the Finishing Department incurs $720,000 of manufacturing overhead. Donaldson has identified machine hours (MH) as the primary
(Click the icon to view the job information.)
Read the equirement
First identify the formula, then compute the rate. (Round your answer to the nearest whole dollar.)
Total manufacturing overhead
Cost allocation base (estimated)
+
25,000
1,450,000
S
Machining
Finishing
Requirement 2. Compute departmental overhead rates assuming that Bergeron's expects to incur 14,800 MH in the Machining Department and 16,000 DL hours in the Finishing Department during the year.
First identify the formula, then compute the rate for each department. (Round your answers to the nearest whole dollar.)
$
$
Job 450
Job 455
Total department overhead
730,000
720,000
+
Plantwide overhead rate
58
58
Machining
Finishing
Total overhead allocation
= Plantwide overhead rate
= $
58
Cost allocation base (estimated)
14,600
16,000
X
X
Requirement 3. If Bergeron's continues to use the plantwide overhead rate, how much manufacturing overhead would be allocated to Job 450 and Job 455?
First identify the formula, then calculate the amount of manufacturing overhead that would be allocated to the jobs if the plantwide overhead rate is used. (Round your answers to the nearest whole dollar.)
Manufacturing overhead
=
Actual use of allocation base
7
7
= $ 50
S
= $ 45
Departmental
overhead rate
=
= S
=
S
per mach. hour
per DL hour
C
allocated
406
406
Requirement 4. If Bergeron's uses departmental overhead rates, how much manufacturing overhead would be allocated to Job 450 and Job 455?
Use the following table to calculate the amount of manufacturing overhead that would be allocated to the jobs if the departmental overhead rates are used. (Round your answers to the nearest whole dollar.)
Job 455
Job 450
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