Southwick Products manufactures its products in two separate departments: Machining and Assembly. Total manufacturing overhead costs for the year are budgeted at $1,100,000. Of this amount, the Machining Department incurs $680,000 (primarily for machine operation and depreciation) while the Assembly Department incurs $420,000. The company estimates that it will incur 10,000 machine hours (all in the Machining Department) and 22,000 direct labor hours 8,000 in the Machining Department and 14,000 in the Assembly Department) during the year.

Southwick Products currently uses a plantwide overhead rate based on direct labor hours to allocate overhead.However, the company is considering refining its overhead allocation system by using departmental overhead rates. The Machining Department would allocate its overhead using machine hours (MH), but the Assembly Department would allocate its overhead using direct labor (DL) hours. The following chart shows the machine hours (MH) and direct labor (DL) hours incurred by Jobs 500 and 501 in each production department:

	Machining		Assembly
	Department		Department
Job 500. . . .	10	MH	12 DL hours
	5	DL hours
Job 501. . . .	20	MH	12 DL hours
	5	DL hours

Both Jobs 500 and 501 used $1,800 of direct materials. Wages and benefits total $30 per direct labor hour.

Southwick Products prices its products at 110% of total manufacturing costs.

Begin by determining the formula, then compute the rate.

Total manufacturing overhead

/

Total direct labor hours

=

Plantwide overhead rate

$1,100,000

/

22,000

=

$50

per DL hour

Requirement 2. Compute refined departmental overhead rates.

Determining the formula, then compute the rates. (Round your answers to the nearest dollar.)

Total departmental overhead cost

/

Total departmental allocation base

=

Departmental overhead rate

Machining	$680,000	/	10,000		=	$68	per mach hour
Assembly	$420,000	/	14,000		=	$30	per DL hour

Requirement 3. Which job (Job 500 or Job 501) uses more of the company's resources? Explain.

Job 501 uses more

of the company's resources.

Job 501 uses more

machine hours than the other job. The accounting system should show that one job actually

"costs" the company more resources than

the other.

Requirement 4. Compute the total amount of overhead allocated to each job if the company uses its current plantwide overhead rate.

	Job 500	Job 501
Total direct labor hours	17	17
x Plantwide allocation rate	$50	$50
Overhead allocation	$850	$850

Requirement 5. Compute the total amount of overhead allocated to each job if the company uses departmental overhead rates. Job 500 Job 501 Overhead allocation Machining Department Overhead allocation Assembly Department Total overhead allocation Requirement 6. Do both of the allocation systems accurately reflect the resources each job used? Explain. Vof overhead to both jobs. The departmental rates assign Vto Job 501 than Job 500 due The single plantwide overhead rate assigned used. This seems to the Requirement 7. Compute the total manufacturing cost and sales price of each job using the company's current plantwide overhead rate. (Round amounts to the nearest dollar. Enter the percentage as a whole number.) Job 501 Job 500 Direct materials Direct labor Manufacturing overhead Total manufacturing costs Markup for pricing (%) % Sales price Requirement 8. Based on the current (plantwide) allocation system, how much profit did the company think it earned on each job? Calculate the gross profit using the current costing system. Job 500 Job 501 Sales price Less: Total manufacturing costs Gross profit /(loss) Based on the departmental overhead rates and the sales price determined in Requirement 7, how much profit did the company really earn on each job? Calculate the gross profit using the departmental rate costing system. (Use parentheses or a minus sign to show losses.) Job 500 Job 501 Sales price Less: Total manufacturing costs: Direct materials Direct labor Manufacturing overhead Gross profit/(loss) Requirement 9. Compare and comment on the results you obtained in Requirements 7 and 8. When utilizing a single rate allocation method, Southwick believes that When utilizing a refined costing method, Southwick realizes that Requirement 5. Compute the total amount of overhead allocated to each job if the company uses departmental overhead rates. Job 500 Job 501 Overhead allocation Machining Department Overhead allocation Assembly Department Total overhead allocation Requirement 6. Do both of the allocation systems accurately reflect the resources each job used? Explain. Vof overhead to both jobs. The departmental rates assign Vto Job 501 than Job 500 due The single plantwide overhead rate assigned used. This seems to the Requirement 7. Compute the total manufacturing cost and sales price of each job using the company's current plantwide overhead rate. (Round amounts to the nearest dollar. Enter the percentage as a whole number.) Job 501 Job 500 Direct materials Direct labor Manufacturing overhead Total manufacturing costs Markup for pricing (%) % Sales price Requirement 8. Based on the current (plantwide) allocation system, how much profit did the company think it earned on each job? Calculate the gross profit using the current costing system. Job 500 Job 501 Sales price Less: Total manufacturing costs Gross profit /(loss) Based on the departmental overhead rates and the sales price determined in Requirement 7, how much profit did the company really earn on each job? Calculate the gross profit using the departmental rate costing system. (Use parentheses or a minus sign to show losses.) Job 500 Job 501 Sales price Less: Total manufacturing costs: Direct materials Direct labor Manufacturing overhead Gross profit/(loss) Requirement 9. Compare and comment on the results you obtained in Requirements 7 and 8. When utilizing a single rate allocation method, Southwick believes that When utilizing a refined costing method, Southwick realizes that