P4-41A Implementation and analysis of departmental rates (Learning Objective 1) Hughes Products manufactures its products in two separate departments: Machining and Assembly. Total manufacturing overhead costs for the year are budgeted at $1,056,000. Of this amount, the Machining Department incurs $600,000 (primarily for machine opera- tion and depreciation), while the Assembly Department incurs $456,000. The company estimates that it will incur 4,000 machine hours (all in the Machining Department) and 9,600 direct labor hours (1,600 in the Machining Department and 8,000 in the Assembly Department) during the year. Hughes Products currently uses a plantwide overhead rate based on direct labor hours to allocate overhead. However, the company is considering refining its overhead al- location system by using departmental overhead rates. The Machining Department would allocate its overhead using machine hours (MH), but the Assembly Department would al- locate its overhead using direct labor (DL) hours.
P4-41A Implementation and analysis of departmental rates (Learning Objective 1) Hughes Products manufactures its products in two separate departments: Machining and Assembly. Total manufacturing overhead costs for the year are budgeted at $1,056,000. Of this amount, the Machining Department incurs $600,000 (primarily for machine opera- tion and depreciation), while the Assembly Department incurs $456,000. The company estimates that it will incur 4,000 machine hours (all in the Machining Department) and 9,600 direct labor hours (1,600 in the Machining Department and 8,000 in the Assembly Department) during the year. Hughes Products currently uses a plantwide overhead rate based on direct labor hours to allocate overhead. However, the company is considering refining its overhead al- location system by using departmental overhead rates. The Machining Department would allocate its overhead using machine hours (MH), but the Assembly Department would al- locate its overhead using direct labor (DL) hours.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please answer parts 7, 8, and 9.
Transcribed Image Text:The following chart shows the machine hours (MH) and direct labor (DL) hou
Assembly
Department
234
CHAPTER 4
P4
curred by Jobs 500 and 501 in each production department:
Machining
Department
15 DL hours
10 MH
2 DL hours
Job 500
20 MH
15 DL hours
Job 501
2 DL hours
Both Jobs 500 and 501 used $1,000 of direct materials. Wages and benefits total $30 per
direct labor hour. Hughes Products prices its products at 120% of total manufacturing costs.
Requirements
1. Compute the company's current plantwide overhead rate.
2. Compute refined departmental overhead rates.
3. Which job (Job 500 or Job 501) uses more of the company's resources? Explain.
4. Compute the total amount of overhead allocated to each job if the company uses its
current plantwide overhead rate.
5. Compute the total amount of overhead allocated to each job if the company uses de
partmental overhead rates.
6. Do both allocation systems accurately reflect the resources that each job used? Explain.
7. Compute the total manufacturing cost and sales price of each job using the compa-
ny's current plantwide overhead rate.
8. Based on the current (plantwide) allocation system, how much profit did the company
think it earned on each job? Based on the departmental overhead rates and the sales
price determined in Requirement 7, how much profit did it really earn on each job?
9. Compare and comment on the results you obtained in Requirements 7 and 8.
Transcribed Image Text:B441A Implementation and analysis of departmental rates (Learning Objective 1)
Hughes Products manufactures its products in two separate departments: Machining and
Assembly. Total manufacturing overhead costs for the year are budgeted at $1,056,000.
Of this amount, the Machining Department incurs $600,000 (primarily for machine opera-
tion and depreciation), while the Assembly Department incurs $456,000. The company
estimates that it will incur 4,000 machine hours (all in the Machining Department) and
9,600 direct labor hours (1,600 in the Machining Department and 8,000 in the Assembly
Department) during the year.
Hughes Products currently uses a plantwide overhead rate based on direct labor
hours to allocate overhead. However, the company is considering refining its overhead al-
location system by using departmental overhead rates. The Machining Department would
allocate its overhead using machine hours (MH), but the Assembly Department would al-
locate its overhead using direct labor (DL) hours.
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