8

Overhead Applied to Jobs, Departmental Overhead Rates Watson Products Inc. uses a normal job-order costing system. Currently, a plantwide overhead rate based on machine hours is used. Marlon Burke, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. Watson has the following data for its two departments for the coming year: Department B Department A $2,660,000 140,000 Overhead costs (estimated) Normal activity (machine hours) $924,000 84,000 Required: 1. Calculate a predetermined overhead rate for the plant as a whole based on machine hours. per machine hour 2. Compute predetermined overhead rates for each department using machine hours. (Carry your calculations out to three decimal places.) Department A $ per machine hour Department B per machine hour 3. Job 73 used 40 machine hours from department A and 60 machine hours from department B. Job 74 used 60 machine hours from department A and 40 machine hours from department B. Compute the overhead cost assigned to each job using the plantwide rate calculated in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Job 73 Job 74 Plantwide Departmental Which of the two approaches gives the fairer assignment? Why? The input in the box below will not be graded, but may be reviewed and considered by your instructor. 4. Repeat Requirement 3, assuming the expected overhead cost for department B is $1,596,000 (not $924,000). Job 73 Job 74 Plantwide Departmental $0 $ For this company, would you recommend departmental rates over a plantwide rate? 5. Conceptual Connection: In most instances, why would a departmental rate be preferable to a plantwide rate? The input in the box below will not be graded, but may be reviewed and considered by your instructor