YY 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:

Required:

Budgeted fixed manufacturing overhead Budgeted variable manufacturing overhead per hour Expected direct labor hours Expected machine hours Actual manufacturing overhead Actual direct labor hours incurred Actual machine hours incurred

Assembly

$330,000 $5 150,000 40,000 $930,000 135,000 46,000

Finishing

$1,000,000 $8 25,000 125,000 $1,720,000 24,000 105,000

Job 002 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

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

(2 marks)

(b) What would be the unit product cost for Job 002? Prepare the journal entry when the job was completed. (4 marks)

(c) Assume that YY 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)