Red Company has two departments: cutting and finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The cutting department bases its rate on machine hours, and the finishing department bases its rate on direct labour cost. At the beginning of the year, the company made the following estimates: Department Direct labour hours Machine hours Manufacturing overhead cost Direct labour cost Predetermined overhead rate Required: 1. Compute the predetermined overhead rate to be used in each department. (Round your answers to 2 decimal places.) Direct labour hours Machine hours Cutting 5,288 47,800 $463,660 $ 77,800 Materials requisitioned Direct labour cost Cutting Finishing 23,800 5,280 O Yes O No $564,800 $353,000 per MH Department 2. Assume that the overhead rates that you computed In Requirement (1) are in effect. The Job cost sheet for Job 129, which was started and completed during the year, showed the following: Finishing % of DLC Department Cutting Finishing 6 20 4 80 $500 $380 $ 85 $320 Compute the total overhead cost applied to job 129. (Do not round Intermediate calculations and round your answer to 2 decimal places.) Total overhead cost applied 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide overhead rate based on direct labour cost, rather than using departmental rates?
Red Company has two departments: cutting and finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The cutting department bases its rate on machine hours, and the finishing department bases its rate on direct labour cost. At the beginning of the year, the company made the following estimates: Department Direct labour hours Machine hours Manufacturing overhead cost Direct labour cost Predetermined overhead rate Required: 1. Compute the predetermined overhead rate to be used in each department. (Round your answers to 2 decimal places.) Direct labour hours Machine hours Cutting 5,288 47,800 $463,660 $ 77,800 Materials requisitioned Direct labour cost Cutting Finishing 23,800 5,280 O Yes O No $564,800 $353,000 per MH Department 2. Assume that the overhead rates that you computed In Requirement (1) are in effect. The Job cost sheet for Job 129, which was started and completed during the year, showed the following: Finishing % of DLC Department Cutting Finishing 6 20 4 80 $500 $380 $ 85 $320 Compute the total overhead cost applied to job 129. (Do not round Intermediate calculations and round your answer to 2 decimal places.) Total overhead cost applied 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide overhead rate based on direct labour cost, rather than using departmental rates?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Red Company has two departments: cutting and finishing. The company uses a job-order costing system and computes a
predetermined overhead rate in each department. The cutting department bases its rate on machine hours, and the finishing
department bases its rate on direct labour cost. At the beginning of the year, the company made the following estimates:
Department
Direct labour hours
Machine hours
Manufacturing overhead cost
Direct labour cost
Predetermined overhead rate
Required:
1. Compute the predetermined overhead rate to be used in each department. (Round your answers to 2 decimal places.)
Direct labour hours
Machine hours
Cutting
5,288
47,800
$463,660
$ 77,800
Materials requisitioned
Direct labour cost
Cutting
Finishing
23,800
5,280
O Yes
O No
$564,800
$353,000
per MH
Department
2. Assume that the overhead rates that you computed in Requirement (1) are in effect. The Job cost sheet for job 129, which was started
and completed during the year, showed the following:
Finishing
% of DLC
Department
Cutting Finishing
6
20
4
80
$500
$380
$ 85 $320
Compute the total overhead cost applied to job 129. (Do not round Intermediate calculations and round your answer to 2 decimal
places.)
Total overhead cost applied
3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide
overhead rate based on direct labour cost, rather than using departmental rates?
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