P7.35 Plantwide versus departmental overhead rates; actual and normal costing: manufacturer Noteperfect Ltd manufactures sheet music stands in two separate departments, cutting and welding. The following data relate to the year just ended: LO 7.3 7.4 7.7 Cutting department Welding department Total plant Budgeted manufacturing overhead $120000 $240000 $360000 Actual manufacturing overhead $108000 $216000 $324000 Budgeted machine hours 24000 96000 120000 Actual machine hours 27000 90000 117000 Budgeted direct labour hours Actual direct labour hours 30000 29400 15000 11700 45000 41100 One of Noteperfect's major products, the A Frame, has the following production requirements: Machine hours Product: A Frame Cutting department Welding department Total plant 2.5 4.0 6.5 4.0 1.0 5.0 Direct labour hours Required 1. Calculate the manufacturing overhead cost of the A Frame using:

(a) a predetermined plantwide rate based on direct labour hours

(b) a predetermined plantwide rate based on machine hours

(c) predetermined departmental rates based on direct labour hours for the cutting department and on machine hours for the welding department. Which of these three estimates of overhead cost is likely to be the most accurate? Explain. 2. Calculate the manufacturing overhead cost of the A Frame, using an actual costing system and departmental overhead rates based on labour hours for cutting and on machine hours for welding. Explain why cost drivers must be used with actual costing as well as with normal costing. 3. Which estimate of overhead costs is likely to be more accurate-that based on predetermined departmental rates or that based on actual departmental rates? Explain.