Overhead Applied to Jobs, Departmental Overhead Rates

Xania Inc. uses a normal job-order costing system. Currently, a plant-wide overhead rate based on machine hours is used. Xania's plant manager has heard that departmental overhead rates can offer significantly better cost assignments than a plant-wide rate can offer. Xania has the following data for its two departments for the coming year:

Department A Department B Overhead costs (expected) $120,000 $53,000

Normal activity (machine hours) 15,500 9,800

Required:

1.Compute a predetermined overhead rate for the plant as a whole based on machine hours. Round your answer to two decimal places.

$_____________per machine hour

2.Compute predetermined overhead rates for each department using machine hours. (Note:Round to two decimal places, if necessary.)

Department A_____________$per machine hour

Department B_____________$per machine hour

3.Conceptual Connection: Job 73 used 20 machine hours from Department A and 50 machine hours from Department B. Job 74 used 50 machine hours from Department A and 20 machine hours from Department B. Compute the overhead cost assigned to each job using the plant wide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Round final answers to the nearest cent, if necessary.

Job 73 Job 74

Plant-wide $_________ $_________

Departmental $_________ $_________

Which of the two approaches gives the fairer assignment?

4.Conceptual Connection: Repeat Requirement 3, assuming the expected overhead cost for Department B is $78,000 (not $53,000). Round overhead rates to the nearest cent.

Job 73 Job 74

Plant-wide $_________ $________

Departmental $_________ $________

For this company, would you recommend departmental rates over a plant-wide rate?