Question
Hecjor Inc. uses a normal job-order costing system. There are two departments (Machining and Assembly) through which all manufactured units must pass. Data for the
Hecjor Inc. uses a normal job-order costing system. There are two departments (Machining and Assembly) through which all manufactured units must pass. Data for the past year are as follows: Machining Assembly Budgeted overhead $1,750,000 $700,000 Actual overhead $1,040,000 $220,000 Expected direct labour hours 50,000 300,000 Expected machine hours 250,000 50,000 During the year, the company completed Job 440, which contained 10,000 units, and recorded the following actual data: Machining Assembly Direct materials $510,000 $950,000 Direct labour cost $6,000 $75,000 Direct labour hours used 400 5,000 Machine hours used 1,200 100 Currently, the company uses a plantwide predetermined overhead rate based on direct labour hours to assign overhead to jobs. Required (A) Compute the predetermined overhead rate and use it to compute the per-unit manufacturing cost for Job 440. (B) Now assume that the company uses departmental rates to assign overhead to jobs. In the Machining department, overhead is assigned on the basis of machine hours. In the Assembly department, overhead is assigned on the basis of direct labour hours. Compute the predetermined departmental rates and, using those, recompute the per-unit manufacturing cost for Job 440. (C) Which method do you recommend the company use to assign overhead? Why? Justify your recommendation.
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