Job Order Costing for Modern Furniture

Modern Furniture Company makes chairs and uses job order costing and applies manufacturing overheads to individual jobs by using predetermined overhead rates. Modern has two departments, assembly and finishing. In assembly department, overhead is applied based on machine hours, and in finishing department, based on direct labor hours. At the beginning of year 2018, Modern Company's management made the following budget estimates as a step toward determining the overhead application rates:

Assembly department

Finishing department

Direct labor

$ 105,000

$ 75,000

Manufacturing overhead

135,000

103,000

Machine-hours

4,500

475

Direct labor hours

7,000

6,250

Production of 500 chairs (job no. 555), was started in the first of January and completed three weeks later.The cost records for this job no. (555) show the following information:

Job No. 555 (500 Chairs)

Assembly department

Finishing department

Cost of materials used on job

$1,700

$1,125

Direct labor cost

$2,025

$1,800

Direct labor hours

135

150

Machine-hours

62.5

25

Required

(1). Compute the overhead rate that should be used for each department in applying overhead costs to job no. 555.

(2). What is the total cost of job No. 555, and what is the unit cost of the product manufactured on this production order?

(3) Discuss in brief some of the advantages and disadvantages of Activity Based Costing Method