Overhead Applied to Jobs, Departmental Overhead Rates Xania Inc. uses a normal job-order costing system. Currently, a plantwide overhead rate based on machine hours is used. Xania’s plant manager has heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. Xania has the following data for its two departments for the coming year: Department A Department B Overhead costs (expected) $110,000 $78,000 Normal activity (machine hours) 13,500 15,800 Required: 1. Compute a predetermined overhead rate for the plant as a whole based on machine hours. Round your answer to two decimal places. $ per machine hour 2. Compute predetermined overhead rates for each department using machine hours. (Note: Round to two decimal places, if necessary.) Department A $ per machine hour Department B $ per machine hour 3. Conceptual Connection: Job 73 used 20 machine hours from Department A and 50 machine hours from Department B. Job 74 used 50 machine hours from Department A and 20 machine hours from Department B. Compute the overhead cost assigned to each job using the plantwide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Round final answers to the nearest cent, if necessary. Job 73 Job 74 Plantwide $ $ Departmental $ $ Which of the two approaches gives the fairer assignment? Departmental rates 4. Conceptual Connection: Repeat Requirement 3, assuming the expected overhead cost for Department B is $103,000 (not $78,000). Round overhead rates to the nearest cent.
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.
Xania Inc. uses a normal
| Department A | Department B | |||
| Overhead costs (expected) | $110,000 | $78,000 | ||
| Normal activity (machine hours) | 13,500 | 15,800 |
Required:
1. Compute a predetermined overhead rate for the plant as a whole based on machine hours. Round your answer to two decimal places.
$ per machine hour
2. Compute predetermined overhead rates for each department using machine hours. (Note: Round to two decimal places, if necessary.)
| Department A | $ per machine hour |
| Department B | $ per machine hour |
3. Conceptual Connection: Job 73 used 20 machine hours from Department A and 50 machine hours from Department B. Job 74 used 50 machine hours from Department A and 20 machine hours from Department B. Compute the overhead cost assigned to each job using the plantwide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Round final answers to the nearest cent, if necessary.
| Job 73 | Job 74 | |
| Plantwide | $ | $ |
| Departmental | $ | $ |
Which of the two approaches gives the fairer assignment?
Departmental rates
4. Conceptual Connection: Repeat Requirement 3, assuming the expected overhead cost for Department B is $103,000 (not $78,000). Round overhead rates to the nearest cent.
| Job 73 | Job 74 | |
| Plantwide | $ | $ |
| Departmental | $ | $ |
For this company, would you recommend departmental rates over a plantwide rate?
Yes
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