P7.37 Plantwide versus departmental overhead rates; actual and normal costing: manufacturer Noteperfect Ltd manufactures sheet music stands in two separate departments, cutting and welding. The following data relate to the year just ended:

1. Calculate the manufacturing overhead cost of the A Frame, using an actual costing system and departmental overhead rates based on labour hours for cutting and on machine hours for welding. Explain why cost drivers must be used with actual costing as well as with normal costing.

2. Which estimate of overhead costs is likely to be more accuratethat based on predetermined departmental rates or that based on actual departmental rates? Explain.

Cutting department Welding department Total plant $60 000 54 000 24 000 $120 000 108 000 96 000 $180 000 162 000 Budgeted manufacturing overhead Actual manufacturing overhead Budgeted machine hours Actual machine hours Budgeted direct labour hours Actual direct labour hours 120 000 117 000 27 000 90 000 30 000 15 000 45 000 29 400 11 700 41 100 One of Noteperfect's major products, the A Frame, has the following production requirements: Product: A Frame Cutting department Welding department Total plant Machine hours 2.5 4.0 6.5 Direct labour hours 4.0 1.0 5.0