Please answer parts 7, 8, and 9. **Educational Resource: Overhead Cost Analysis in Production**### OverviewThe chart below details the machine hours (MH) and direct labor (DL) hours incurred by Jobs 500 and 501 in each production department.| | Machining Department | Assembly Department ||------------------|----------------------|---------------------|| **Job 500** | 10 MH | 15 DL hours || | | || **Job 501** | 20 MH | 15 DL hours || | 2 DL hours | 2 DL hours |### Additional Information- **Direct Materials Usage**: Both Jobs 500 and 501 used $1,000 of direct materials.- **Wage and Benefit Costs**: Total $30 per direct labor hour.- **Pricing**: Hughes Products prices its products at 120% of total manufacturing costs.### Requirements1. **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 departmental 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 company's current plantwide overhead rate.**8. **Based on the current (plantwide) allocation system, how much profit did the company earn 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.**This analysis aims to guide understanding of overhead allocation and its impact on job costing and profitability decisions within a manufacturing context. **Implementation and Analysis of Departmental Rates**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 operation 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 allocation system by using departmental overhead rates. The Machining Department would allocate its overhead using machine hours (MH), but the Assembly Department would allocate its overhead using direct labor (DL) hours.

Job costing is one type of costing in which the cost as well as the production overheads will be…

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.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 28E: Minor Co. has a job order cost system and applies overhead based on departmental rates. Service...

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Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid 28,000 per year and is able to process 4,000 purchase orders. Last year, 17,800 purchase orders were processed by the five agents. Required: 1. Calculate the activity rate per purchase order. 2. Calculate, in terms of purchase orders, the: a. total activity availability b. unused capacity 3. Calculate the dollar cost of: a. total activity availability b. unused capacity 4. Express total activity availability in terms of activity capacity used and unused capacity. 5. What if one of the purchasing agents agreed to work half time for 14,000? How many purchase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders?
At the beginning of the period, the Fabricating Department budgeted direct labor of 72,000 and equipment depreciation of 18,500 for 2,400 hours of production. The department actually completed 2,350 hours of production. Determine the budget for the department, assuming that it uses flexible budgeting.
Varney Corporation, a manufacturer of electronics and communications systems, allocates Computing and Communications Services Department (CCS) costs to profit centers. The following table lists the types of services and cost drivers for each service. The table also includes the budgeted cost and quantity for each service for August. One of the profit centers for Varney Corporation is the Communication Systems (COMM) division. Assume the following information for COMM: COMM has 2,500 employees, of whom 20% are office employees. All of the office employees have been issued a smartphone, and 95% of them have a computer on the network. One hundred percent of the employees with a computer also have an email account. The average number of help desk calls for August was 0.6 call per individual with a computer. There are 400 additional printers, servers, and peripherals on the network beyond the personal computers. a. Compute the service allocation rate for each of CCSs services for August. b. Compute the allocation of CCSs services to COMM for August.
A company estimates its manufacturing overhead will be $840,000 for the next year. What is the predetermined overhead rate given each of the following Independent allocation bases? Budgeted direct labor hours: 90,615 Budgeted direct labor expense: $750000 Estimated machine hours: 150,000
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Minor Co. has a job order cost system and applies overhead based on departmental rates. Service Department 1 has total budgeted costs of 168,000 for next year. Service Department 2 has total budgeted costs of 280,000 for next year. Minor allocates service department costs solely to the producing departments. Service Department 1 cost is allocated to producing departments on the basis of machine hours. Service Department 2 cost is allocated to producing departments on the basis of direct labor hours. Producing Department 1 has budgeted 8,000 machine hours and 12,000 direct labor hours. Producing Department 2 has budgeted 2,000 machine hours and 12,000 direct labor hours. What is the total cost allocation from the two service departments to Producing Department 1? a. 173,600 b. 140,000 c. 134,400 d. 274,400
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Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 20X1: During 20X1, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred: Marston applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates. Required: 1. Prepare a performance report for Marstons manufacturing costs in the current year. 2. Assume that one of the products produced by Marston is budgeted to use 10,000 direct labor hours, 15,000 machine hours, and 500 moves and will be produced in five batches. A total of 10,000 units will be produced during the year. Calculate the budgeted unit manufacturing cost. 3. One of Marstons managers said the following: Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the previous budget really needs to provide more detailed information. For example, I know that the moving materials activity involves the use of forklifts and operators, and this information is lost when only the total cost of the activity for various levels of output is reported. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at 10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of 30,000 per year. Also, I know that fuel costs about 0.25 per move. Assuming that these are the only three items, expand the detail of the flexible budget for moving materials to reveal the cost of these three resource items for 20,000 moves and 40,000 moves, respectively. Based on these comments, explain how this additional information can help Marston better manage its costs. (Especially consider how activity-based budgeting may provide useful information for non-value-added activities.)
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Condoleeza Co. manufactures two products, A and B, in two production departments, Assembly and Finsihing. Condoleeza Co. exceeds to produce 10,000 units of Product A and 20,000 units of Product B in the coming year. Budgeted factory overhead costs for the coming year are: Assembly $310,000 Finishing 240,000 Total $ 550,000 The machine hours expected to be used in the coming year are as follows: Assembly Department Finishing Department Product A 15,100 9,000 Product B 4,900 11,000 Total 20,000 20,000 How much is the factory overhead allocated in Product A and Product B?