Question
Tracey Company of Cincinnati, Ohio has two manufacturing departmentsMachining and Assembly. The company considers all of its manufacturing overhead costs to be fixed costs. It
Tracey Company of Cincinnati, Ohio has two manufacturing departmentsMachining and Assembly. The company considers all of its manufacturing overhead costs to be fixed costs. It provided the following estimates at the beginning of the year as well as the following information with respect to Jobs A and B:
Estimated Data | Machining | Assembly | Total |
Manufacturing overhead | $500,000 | $100,000 | $600,000 |
Direct labor-hours | 10,000 | 50,000 | 60,000 |
Machine-hours | 50,000 | 5,000 | 55,000 |
Job A | Machining | Assembly | Total |
Direct labor-hours | 5 | 10 | 15 |
Machine-hours | 11 | 2 | 13 |
Job B | Machining | Assembly | Total |
Direct labor-hours | 4 | 5 | 9 |
Machine-hours | 12 | 3 | 15 |
Required
- If Tracey Company uses a plantwide predetermined overhead rate with direct labor-hours as the allocation base, how much manufacturing overhead cost would be applied to Job A? Job B? Show your work.
- Assume that Tracey Company uses departmental predetermined overhead rates. The Machining Department is allocated based on machine-hours and the Assembly Department is allocated based on direct labor-hour. How much manufacturing overhead cost would be applied to Job A? Job B? Show your work.
- If Tracey Company multiplies its job costs by a markup percentage to establish selling prices, how might plantwide allocation adversely affect the companys pricing decision?
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