Allen Furnishings manufactures upscale custom furniture. Allen Furnishings currently uses a plantwide overhead rate based on direct labour hours to allocate its $1,650,000 of manufacturing overhead to individual jobs. However, Werner Allen, owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $1,007,000 of MOH while the Finishing Department incurs $378,000 of MOH. Werner has identified machine hours (MH) as the primary MOH cost driver in the Machining Department and direct labour (DL) hours as the primary cost driver in the Finishing Department.

The Isaacson Furnishings plant completed Jobs 450 and 455 on May 15. Both jobs incurred a total of 6 DL hours throughout the entire production process. Job 450 incurred 1 MH in the Machining Department and 5 DL hours in the Finishing Department. Job 455 incurred 6 MH in the Machining Department and 4 DL hours in the Finishing Department. (The other DL hour occurred in the Machining Department.)

Requirement 1. Compute the plantwide overhead rate assuming that Allen expects to incur 30,000 total DL hours during the year. First select the labels in the formula, and then compute the rate. (Round the plantwide overhead rate to the nearest whole dollar.)

Total manufacturing overhead

/

Cost allocation base (estimated)

=

Plantwide overhead rate

$1,650,000

/

30,000

=

$55

Requirement 2. Compute departmental overhead rates assuming that Allen expects to incur 19,000 MH in the Machining Department and 19,000 DL hours in the Finishing Department during the year. Select the labels in the formula, and then compute the rate for each department. (Round the department overhead rates to the nearest whole dollar.)

					Department
	Total department overhead	/	Cost allocation base (estimated)	=	overhead rate

Machining

$752,000

/

19,000

=

$53

/ mach. hour

Finishing

$320,000

/

19,000

=

$21

/ DL hour

Requirement 3. If

Allen continues to use the plantwide overhead rate, how much manufacturing overhead would be allocated to Job 450 and Job 455? Select the labels in the formula, and then calculate the amount of manufacturing overhead that would be allocated to the jobs if the plantwide overhead rate is used. (Round your interim and final answers to the nearest whole dollar.)

					Allocated manufacturing
	Plantwide cost allocation rate	x	Cost allocation base (actual)	=	overhead
Job 450	55	x		=
Job 455	55	x		=

Requirement 4. If

Allen uses departmental overhead rates, how much MOH would be allocated to Job 450 and Job 455?

Use the following table to calculate the amount of manufacturing overhead that would be allocated to the jobs if the departmental overhead rates are used. (Round your interim and final answers to the nearest whole dollar.)

	Job 450	Job 455
Machining
Finishing
Total overhead allocation

Requirement 5. Based on your answers to Requirements 3 and 4, does the plantwide overhead rate overcost or undercost either job? Explain. If the company sells its furniture at 130% of cost, will its choice of allocation systems affect product pricing? Explain. Explain. First, determine whether the plantwide overhead rate overcosts or under costs either job. Complete the sentence below. (Round your answers to the nearest whole dollar.)

The single plantwide rate over costs Job 450 by $ and under costs Job 455 by $ .Now, decide whether Allen's choice of allocation systems affects product pricing. Since Allen sets his sales price at % of cost and the job cost is affected by the allocation system he uses, the sales price of products will be affected by the allocation system used