Identifying Opportunity Costs [LO3 - CC3) Bill is the manager of the product development division at Fiao Company. He has been invited to a company lunch with several colleagues. He is also expected to prepare a quarterly financial performance report on his division. The report is due in two days, and Bill estimates that there are approximately 16 to 20 hours of work remaining. A colleague remarks to Bill, while they discuss if Bill should attend the lunch, "You are not one to refuse a free lunch! You should go." Bill responds by saying, "In this case, I am not sure there is such a thing as a free lunch." Required: Explain the cost concept that best applies to Bill's response. White Company has two departments cutting and finishing. The company uses a job order costing system and computes a predetermined overhead rate in each department. The cutting department bases its rate on machine-hours, and the finishing department bases its rate on direct labour cost. At the beginning of the year, the company made the following estimates: Department Cutting Finishing Direct labour-hours 5,000 21.000 Machine-hours 45,000 3,000 Manufacturing overhead cost $382,500 $499,500 Direct labour cost $ 75,000 $270,000 Required 1. Compute the predetermined overhead rate to be used in each department 2. Assume that the overhead rates that you computed in part (1) are in effect. The job cost sheet for job 203, which was started and completed during the year, showed the following Department Cutting Finishing Direct labour-hours 6 20 Machine-hours 90 Materials requisitioned $500 $380 Direct labour cost $ 85 $250 Compute the total overhead cost applied to job 203 Page 134 3. Would you expect substantially different arounts of overhead cost to be assigned to some jobs it the company used a plantwide overhead rate based on direct labour cost rather than using departmental rates? Explain your answer. No computations are necessary