Question
All of a company's manufacturing overhead costs are considered to be fixed costs. The company has two departments and the overhead estimates for the year
All of a company's manufacturing overhead costs are considered to be fixed costs. The company has two departments and the overhead estimates for the year and for one job (Order #5112) completed during the year are in the following tables.
Estimated Data | Assembly | Finishing | Total | |||
Manufacturing overhead costs | $ | 7,800,000 | $ | 8,400,000 | $ | 16,200,000 |
Direct labor-hours | 150,000 | 90,000 | 240,000 | |||
Machine-hours | 60,000 | 300,000 | 360,000 | |||
Order # 5112 | Asssembly | Finishing | Total |
Direct labor-hours | 31 | 23 | 54 |
Machine-hours | 23 | 26 | 49 |
Required:
1. Assume the company uses a plantwide predetermined overhead rate based on direct labor hours. Compute the predetermined overhead rate and the amount of manufacturing overhead applied to Order #5112.
2. Compute the predetermined overhead rates for each department and the manufacturing overhead applied to Order #5112 if the company uses departmental predetermined overhead rates. Use direct labor-hours as the allocation base in Assembly and machine-hours as the allocation base in Finishing.
(Round your intermediate calculation to 2 decimal places.)
3. Which method to assign overhead do you recommend and why?
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