Bryan Company uses a normal job-order cost system. Currently, a plantwide overhead rate is used, based on machine hours. Sam Perkins, the plant manager, has heard that depart¬

mental overhead rates can offer significantly better cost assignments than can a plantwide rate. Bryan has the following data for its two departments for the coming year;

Required:
1. Compute a predetermined overhead rate for the plant as a whole based on machine hours.
2. Compute predetermined overhead rates for each department using machine hours.
3. Job 15 used 20 machine hours from Department A and 50 machine hours from De¬
partment B. Job 22 used 50 machine hours from Department A and 20 from Depart¬
ment 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. Which of the two approaches gives the fairest assignment?
Why?
4. Repeat Requirement 3 assuming the expected overhead cost for Department B is $40,000.
Now would you recommend departmental rates over a plantwide rate?

Transcribed Image Text:

Overhead costs (expected) Normal activity (machine hours) Department A Department B $50,000 10,000 $22,000 8,000