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Question 2 20 pts d. Explain to the company's management why it is necessary to apply overhead costs to production through the use of a
Question 2 20 pts d. Explain to the company's management why it is necessary to apply overhead costs to production through the use of a predetermined manufacturing overhead rate but not using actual overhead costs. 3 marks) e. Briefly explain if the company use department overhead rates to allocate overhead, how would be the allocation process different from the current plant-wide rate method [2 marks] Question II: Job-Order Costing (20 marks] You are working for UST Company as an accountant. The company uses job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours. The following estimates were used in preparing the predetermined overhead rate for the most recent year: Machine hours Manufacturing overhead cost 112,500 $1.687.500 The company's cost records revealed the following actual cost and operating data for the year: Machine hours Manufacturing overhead cost 120,000 $1.950,000 Amount of applied overhead in inventories at year-end: Work In Process Finished Goods Cost of Goods Sold $450,000 $360,000 $990,000 Required a. Compute the company's predetermined overhead rate for the year and the amount of under-or over-applied overhead for the year. Is it under-applied or over-applied? [4 marks) b. Allocate the under-or over-applied overhead among the appropriate accounts, Work in Process Finished Goods, and Cost of Goods Sold. These accounts would be increased or decreased. Besides this method, what is the alternative, simpler method to handle the under-or over-applied overhead? How and how much the account would be affected by this simpler method?[6 marks] c. Determine how the company's balance sheet and income statement would be different in amount if the under-or over-applied overhead is allocated by the simpler method, rather than among the appropriate accounts. [5 marks)
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