XX Company uses a job-order costing system in which predetermined overhead rates are used to apply

manufacturing overhead cost to jobs. The predetermined overhead rate in the Assembly department is based on

direct labor hours, and the rate in the Finishing department is based on machine hours. Selected budgeted and

actual data for the past year follow:

Assembly Finishing

Budgeted fixed manufacturing overhead $330,000 $1,000,000

Budgeted variable manufacturing overhead per hour $5 $8

Expected direct labor hours 150,000 25,000

Expected machine hours 40,000 125,000

Actual manufacturing overhead $930,000 $1,720,000

Actual direct labor hours incurred 135,000 24,000

Actual machine hours incurred 46,000 105,000

Job 003 was started on 1 December and finished on 28 December. The companys records show the following

information concerning the job:

Direct materials $550,000

Direct labor:

Assembly - 6,000 hours @ $12 per hour

Finishing - 300 hours @ $15 per hour

Machine hours used:

Assembly 100 hours

Finishing 1,200 hours

Units produced 2,000

Required:

(a) Compute the predetermined overhead rates for the Assembly and Finishing departments. (2 marks)

(b) What would be the unit product cost for Job 003? Prepare the journal entry when the job was completed.

(4 marks)

(c) Assume that XX Company multiplies its job costs by a markup percentage to establish its selling prices,

how might plantwide overhead allocation adversely affect the companys pricing decision. (3 marks)

(d) Assume that the company closes any underapplied or overapplied manufacturing overhead directly to cost

of goods sold. Prepare the journal entry. (3 marks)

(e) Briefly explain how reducing 10% of the estimated hours in both departments in calculating the

predetermined overhead rates will result in a big increase in net operating income at the end of the year.

(3 marks)