Assume a company has two manufacturing departments – Assembly
and Fabrication. The company considers all of its manufacturing
overhead costs to be fixed costs. The first set of data below is
budgeted data for the company as a whole that was estimated at the
beginning of the year. The second set of data below is actual data
for the company as a whole that was derived at the end of the year.
The third set of data relates to one particular job completed
during the year– Job Z.
| Budgeted Data | Assembly | Fabrication | |||||
| Manufacturing overhead costs | $ | 300,000 | $ | 400,000 | |||
| Direct labor hours | 25,000 | 15,000 | |||||
| Machine hours | 10,000 | 50,000 | |||||
| Actual Data | Assembly | Fabrication | |||||
| Manufacturing overhead costs | $ | 330,000 | $ | 380,000 | |||
| Direct labor hours | 27,000 | 16,000 | |||||
| Machine hours | 10,500 | 48,000 | |||||
| Job Z | Assembly | Fabrication | |||||
| Direct labor hours | 10.50 | hours | 2 | hours | |||
| Machine hours | 1 | hour | 7.50 | hours | |||
Assume the company uses departmental predetermined overhead rates.
It uses direct labor-hours as the allocation base in Assembly and
machine-hours as the allocation base in Fabrication. How much
manufacturing overhead would be applied from both departments to
Job Z?
| Allocation of Manufacturing OH to Job Z | |||
| Particulars | Amount | ||
| Assembly | (10.5 hours x $ 12) | $ 126.00 | |
| Fabrication | (7.5 hours x $ 8) | $ 60.00 | |
| $ 186.00 | |||
.
Workings:
| Computation of Departmental predetermined OH rates | ||||
| Particulars | Assembly | Fabrication | ||
| Manufacturing overhead costs | $ 3,00,000.00 | $ 4,00,000.00 | ||
| Direct labor hours | 25000 | |||
| Machine hours | 50000 | |||
| OH rates | $ 12.00 | $ 8.00 | ||
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