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Question 7: Computing Costs of an Object Donkey Aussie Limited has two departments Iron and Jelly. The company uses a job-order costing system. The company

Question 7: Computing Costs of an Object

Donkey Aussie Limited has two departments Iron and Jelly. The company uses a job-order costing system. The company manufactures luxury bicycles for sport.

The company currently computes a predetermined overhead rate for the overall plantwide based on machine-hours.

The company is considering a change to compute predetermined overhead per each department. The Iron Department would base its rate on machine-hours and the Jelly Department bases its rate on direct labour-hours. At the beginning of the year, the company made the following estimates:

Department

Iron

Jelly

Direct labour-hours

14,000

420,000

Machine-hours

640,000

26,000

Total fixed manufacturing overhead cost

$11,390,000

$11,500,000

Variable manufacturing overhead per machine-hour

$14.00

$14.00

Variable manufacturing overhead per direct labour-hour

$26.75

$26.75

During the company complete Job #7707, which was started and completed during the year. The job sheet for Job #7707 is presented as follows:

Department

Iron

Jelly

Direct labour-hours

16

299

Machine-hours

410

21

Materials requisitioned

$312,800

$216,370

Direct labour costs

$85,145

$106,160

Required:

  1. Compute the cost of Job #7707 if pre-determined overhead is calculated based on a plantwide basis.
  2. Compute the cost of Job #7707 if pre-determined overhead is calculated based on a department basis.

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