Part 2: Job Order Costing Mr. Suncat is trying to determine if he should use a job order costing system or an activity-based costing system to better determine the cost of each of his products. He has provided you with the following information and has requested that you help him by answering these questions/calculating these amounts. Direct Material Costs per wedding cake type Direct Labor Hours per wedding cake type Number of cakes expected to be produced by wedding cake type Direct Labor Costs per hour per wedding cake type Total estimated manufacturing overhead cost is $150,000. a. Define and explain the purpose of a predetermined overhead rate that is applied in a job-order costing system. Predetermined overhead rate= (Total estimated overhead / estimated total allocation base) This rate is based on estimated data. Under job costing, predetermined overhead rate is used to allocate overhead to a particular job. This makes working out the incidence of overheads for each job easier. No. of Cakes Produced Direct Labor Hours used per cake. Total Direct Labor Hours Basic $20 3 hours 1500 $50/hour b. Using the information given above, compute the predetermined manufacturing overhead rate based on total direct labor hours for Suncat Cake Shop. Show all calculations and clearly label your answer. Direct Labor Hours Used for Each Product Basic Multi-Layer $35 5 hours 1700 $50/hour 1,500 Multi-Layer Custom Total 1,700 1000 5 7 FFFF 8,500 7,000 Predetermined Overhead Rate = (Total Estimated Overhead / Estimated Total Allocation Base) $150,000 / 20,000 $7.5 per Direct Labor Hour 3 Custom $50 7 hours 1000 $50/hour 4,500 20,000 c. Using job-order costing, compute the total manufacturing overhead cost that is expected to be allocated to each product. Show all calculations and clearly label your answer. Applied Manufacturing Overhead = Direct Labor Hours X Overhead Rate 1. Basic Wedding Cake (4,500 Direct Labor Hours X $7.5 per hour) = $33,750 2. Multi-layer Wedding Cake (8,500 Direct Labor Hours X $7.5 per hour) = $63,750 3. Custom Wedding Cake (7,000 Direct Labor Hours X $7.5 per hour) = $52,500 d. Do you think the total overhead cost allocation between the three products is reasonable? Why or why not? e. Using job-order costing, compute the product cost for each product. Show all calculations and clearly label your answer. 1. Basic Wedding Cake 2. Multi-layer Wedding Cake 3. Custom Wedding Cake f. Anticipate any business problems that may result from allocating the manufacturing overhead based only on the direct labor hours used to produce the wedding cakes.