Walters 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. (Click the icon to view the additional information.) Read the Requirement 1. Compute the company's current plantwide overhead rate. (Round your answer to the nearest dollar.) Begin by determining the formula, then compute the rate. Requirement 2. Compute refined departmental overhead rates. Determining the formula, then compute the rates. (Round your answers to the nearest dollar.) Requirement 3. Which job (Job 500 or Job 501) uses more of the company's resources? Explain. of the company's resources. machine hours than the other job. The accounting system should show that one job actually the other. Requirement 4. Compute the total amount of overhead allocated to each job if the company uses its current plantwide overhead rate. Requirement 5. Compute the total amount of overhead allocated to each job if the company uses departmental overhead rates. Requirement 6. Do both of the allocation systems accurately reflect the resources each job used? Explain. The single plantwide overhead rate assigned of overhead to both jobs. The departmental rates assign to Job 501 than Job 500 due to the used. This seems 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.) 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. 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.) Requirement 9. Compare and comment on the results you obtained in Requirements 7 and 8 . When utilizing a single rate allocation method, Walters believes that When utilizing a refined costing method, Walters realizes that Data table Walters 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: Both Jobs 500 and 501 used $1,800 of direct materials. Wages and benefits total $30 per direct labor hour. Walters Products prices its products at 110% of total manufacturing costs. Requirements 1. Compute the company's current plantwide overhead rate. 2. Compute refined departmental overhead rates. 3. Which job (Job 500 or Job 501) uses more of the company's resources? Explain. 4. Compute the total amount of overhead allocated to each job if the company uses its current plantwide overhead rate. 5. Compute the total amount of overhead allocated to each job if the company uses departmental overhead rates. 6. Do both allocation systems accurately reflect the resources that each job used? Explain. 7. Compute the total manufacturing cost and sales price of each job using the company's current plantwide overhead rate. 8. Based on the current (plantwide) allocation system, how much profit did the company think it earned on each job? Based on the departmental overhead rates and the sales price determined in Requirement 7, how much profit did it really earn on each job? 9. Compare and comment on the results you obtained in Requirements 7 and 8
