Mariposa, Inc., produces machine tools and currently uses a plantwide overhead rate, based on machine hours. Harry Whipple, the plant manager, has heard that departmental overhead rates an offer significantly better cost assignments than can a plantwide rate. Mariposa has the following data for its two departments for the coming year: Department A Department B Overhead costs (expected) $720,000 $180,000 Normal activity (machine hours) 120,000 60,000 Required: Compute a predetermined overhead rate for the plant as a whole based on machine hours. Compute predetermined overhead rates for each department using machine hours. Suppose that a machine tool (Product X75) used 60 machine hours from Department A and 150 machine hours from Department B. A second machine tool (Product Y15) used 150 machine hours from Department A and 60 machine hours from Department B. Compute the overhead cost assigned to each product using the plantwide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Which of the two approaches gives the fairest assignment? Why? Repeat Requirement 3 assuming the expected overhead cost for Department B is $360,000. Now would you recommend departmental rates over a plantwide rate?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Mariposa, Inc., produces machine tools and currently uses a plantwide
Mariposa has the following data for its two departments for the coming year:
|
|
Department A |
Department B |
|
Overhead costs (expected) |
$720,000 |
$180,000 |
|
Normal activity (machine hours) |
120,000 |
60,000 |
Required:
- Compute a predetermined overhead rate for the plant as a whole based on machine hours.
- Compute predetermined overhead rates for each department using machine hours.
- Suppose that a machine tool (Product X75) used 60 machine hours from Department A and 150 machine hours from Department B. A second machine tool (Product Y15) used 150 machine hours from Department A and 60 machine hours from Department B. Compute the overhead cost assigned to each product using the plantwide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Which of the two approaches gives the fairest assignment? Why?
- Repeat Requirement 3 assuming the expected overhead cost for Department B is $360,000. Now would you recommend departmental rates over a plantwide rate?
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