The Jessie Lynne Company manufactures playground equipment. For 2004, budgeted manufacturing overhead is \($240,000\). Budgeted direct labor is 30,000 hours at a cost of \($384,000\). Budgeted machine hours are 12,500.

Required:

a. When production begins on January 1, 2004, would it be a good idea for the managers to determine the cost of the manufacturing overhead associated with each swing set produced, or should managers wait for this information until actual overhead cost amounts are available at the end of the year? Explain your reasoning.

b. If we assume that managers need to know the manufacturing overhead cost associated with the playground equipment as soon as the equipment is manufactured, would actual overhead cost information be available when the first few swing sets are made in January? Explain your reasoning.

c. If we assume managers need to know the overhead cost associated with the playground equipment as soon as the equipment is made, and it is too early in the year to have actual overhead cost information, what overhead cost information must be used to allocate overhead cost to playground equipment produced by the company?

d. Determine the overhead application rates based on the following:

1. Direct labor hours

2. Direct labor cost

3. Machine hours

e. If you were asked to help select an allocation base for the Jessie Lynne Company, which of the three used in (d) would you recommend? Which would you not recommend?
Why?