PR 3-48 (Algo) Job-Order Costing; Focus on Overhead and Cost Drivers (LO 3-2, 3-4, 3-5, 3-7)

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Garcia, Incorporated, uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company applies manufacturing overhead using machine hours in the Machining Department and direct-labor cost in the Assembly Department. The following information relates to the year just ended:

Items	Machining Department	Assembly Department
Budgeted manufacturing overhead	$ 4,000,000	$ 3,136,000
Actual manufacturing overhead	4,270,000	3,040,000
Budgeted direct-labor cost (based on practical capacity)	1,500,000	5,600,000
Actual direct-labor cost	1,450,000	5,780,000
Budgeted machine hours (based on practical capacity)	400,000	100,000
Actual machine hours	425,000	110,000

The data that follow pertain to job number 775, the only job in production at year-end.

Items	Machining Department	Assembly Department
Direct material	$ 23,500	$ 6,800
Direct labor	$ 27,800	$ 58,600
Machine hours	360	150

Selling and administrative expense amounted to $2,500,000.

PR 3-48 (Algo) Part 1 Assuming the use of normal costing, determine the predetermined overhead rates

Required:

1. Assuming the use of normal costing, determine the predetermined overhead rates used in the Machining Department and the Assembly Department.

PR 3-48 (Algo) Part 2 Compute the cost of the companys year-end work-in-process inventory.

2. Compute the cost of the companys year-end work-in-process inventory.

PR 3-48 (Algo) Part 3 Determine whether overhead was under- or overapplied

3. Determine whether overhead was under- or overapplied during the year in the Machining Department.

PR 3-48 (Algo) Part 4 Determine whether overhead was under- or overapplied

4. Determine whether overhead was under- or overapplied during the year in the Assembly Department.

PR 3-48 (Algo) Part 5 If the company disposes of under- or overapplied overhead as an adjustment

5. If the company disposes of under- or overapplied overhead as an adjustment to Cost of Goods Sold, would the companys Cost of Goods Sold account increase or decrease?

PR 3-48 (Algo) Part 6 How much overhead would have been charged to the companys Work-in-Process

6. How much overhead would have been charged to the companys Work-in-Process account during the year?

PR 3-48 (Algo) Part 7 Comment on the appropriateness of the companys cost drivers

7. Comment on the appropriateness of the companys cost drivers (i.e., the use of machine hours in Machining and direct-labor cost in Assembly).