Question

Tracey Company of Cincinnati, Ohio has two manufacturing departments—Machining 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

1. 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.

2. 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.

3. If Tracey Company multiplies its job costs by a markup percentage to establish selling prices, how might plantwide allocation adversely affect the company’s pricing decision?

Answer 1