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The RICH CORPORATION uses a job order costing system. There are two departments, machining and finishing. The company uses normal costing. The 2016 budget for
The RICH CORPORATION uses a job order costing system. There are two departments, machining and finishing. The company uses normal costing. The 2016 budget for the company is as follows: Explain why a company would use normal costing (i.e., a predetermined overhead rate for costing overhead) rather than the actual costing. What is the difference? Assume that the company uses a plant wide predetermined rate for overhead with direct labor cost as the single cost driver. Compute the predetermined overhead rate. During the month of September, 2016, 200 chairs in Job 101 were produced. The job cost sheet for Job 101 shows the following: Compute the total manufacturing overhead cost per unit using a plant wide overhead rate. Actual amounts reported at the end of 2016 are as follows: Compute the over or under allocated (applied) overhead for 2016. The company has been introduced to department rates for computing the predetermined overhead rate, using machine hours for the machining department and direct labor costs for the finishing department. Explain why the RICH Corporation should use department rates rather than a plant wide rate for overhead. Please do not simply say it is more accurate. Redo your calculations for parts 2 - 4 above using department rates
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