Dan’s Custom Cabinets makes stereo cabinets for new homes and remodeling jobs. Dan crafts each cabinet to fit special places and uses solid wood throughout, making his cabinets of much higher quality than can be bought in the normal cabinet market. The labor, machine hours, and assembly hours for the three departments as well as the overhead incurred in each department used to make the cabinets are in the table below.

Each cabinet requires a different amount of work in each department. For three cabinet orders, the following are the details:

REQUIRED:

a. Using direct labor hours as the driver, develop an overhead rate for the entire factory. Make sure to include general overhead in your calculations.

b. What does each job cost using the plant-wide rate on direct labor hours? Do not forget to charge out the actual labor to each job.

c. Using machine hours as the driver, develop an overhead rate for the entire factory. Make sure to include general overhead in your calculations.

d. What does it cost to make each product? Continue to charge your direct labor cost to the product. These calculations only affect overhead. Machine hours are used for overhead allocation.

e. Next, do the following: Charge general overhead on direct labor hours, Cutting’s overhead on machine hours, Stain and Paint’s overhead on direct labor hours, and Assembly’s overhead on assembly hours. Be careful here. You want to choose only one driver for each department. Direct labor costs continue to be charged out on direct labor hours.

f. Re compute your job order costs using these new departmental rates.

g. Compare the costs you have computed. Which method appears to be best? Why?

Transcribed Image Text:

Dan's Custom Cabinets Cutting Dept. Stain and Paint Assembly General Plant Overhead $24,000 $100,000 $60,000 $36,000 Direct labor hours NA NA 4,000 8,000 6,000 Mochine hours 6,000 2,000 2,000 Assembly hours 2,000 4,000 10,000 NA