Question

Melinda Spencer Company uses a job-order costing system. The company has two departments through which most printing jobs pass. Selected budgeted and actual data for the past year follow:

Designing Printing & Cutting

Budgeted overhead $200,000 $500,000

Actual overhead $110,000 $520,000

Expected activity (direct labor hours) 50,000 20,000

Expected machine hours 10,000 50,000

Actual direct labor hours 52,000 9,000

Actual machine hours 10,500 52,000

During the year, several jobs were completed. Data pertaining to one such job, Job for Customer Mark Lewis as follows:

Direct materials $20,000

Direct labor cost:

Designing (5,000 hours @ $6 per hour) $30,000

Printing & Cutting (2,000 hours @ $6 per hour) $12,000

Machine hours used:

Designing 200

Printing & Cutting 1,200

Units produced 20,000

Melinda Spenser Company uses a plantwide predetermined overhead rate to assign overhead to jobs. Direct labor hours (DLH) are used to compute the predetermined overhead rate.

Instruction:

1. Compute the predetermined overhead rate.

2, Using the predetermined rate, compute the per-unit manufacturing cost for Job to Customer Mark Lewis.

3. Recalculate the unit manufacturing cost for Job to Customer Mark Lewis using departmental overhead rates. Use direct labor hours for Designing and machine hours for Printing & Cutting.

4. Explain which approach provides a more accurate unit cost and why?

Answer 1