Sandersons Fine Furnishings manufactures upscale custom furniture. Sandersons currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,000,000 of manufacturing overhead to individual jobs. However, Margaret Garmon, owner and CEO, is considering refining the companys costing system by using departmental overhead rates. Currently, the Machining Department incurs $660,000 of manufacturing overhead, while the Finishing Department incurs $340,000 of manufacturing overhead. Garmon has identified machine hours (MH) as the primary manufacturing over-head cost driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing Department. The Sandersons plant completed Jobs 450 and 455 on May 15. Both jobs incurred a total of 5 DL hours throughout the entire production process. Job 450 incurred 3 MH in the Machining Department and 4 DL hours in the Finishing Department (the other DL hour occurred in the Machining Department). Job 455 incurred 4 MH in the Machining Department and 3 DL hours in the Finishing Department (the other two DL hours occurred in the Machining Department).

Requirements

1. Compute the plantwide overhead rate assuming that Sandersons expects to incur 20,000 total DL hours during the year.

2. Compute departmental overheadrates assuming that Sandersons expects to incur 15,000 MH in the Machining Department and 17,000 DL hours in the Finishing Department during the year.

3. If Sandersons continues to use the plantwide overhead rate, how much manufacturing overhead would be allocated to Job 450 and Job 455?

4. If Sandersons uses departmental overhead rates, how much manufacturing overhead would be allocated to Job 450 and Job 455?

5. Based on your answers to Requirements 3 and 4, does the plantwide overhead rateovercost or undercost either job? Explain. If Sandersons sells its furniture at 125% of cost, will its choice of allocation systems affect product pricing? Explain