The Gilster Company, a machine tooling firm, has several plants. One plant, located in St. Falls, Minnesota, uses a job order costing system for its batch production processes. The St. Falls plant has two departments through which most jobs pass. Plantwide overhead, which includes the plant manager’s salary, accounting personnel, cafeteria, and human resources, is budgeted at $200,000. During the past year, actual plantwide overhead was $185,000. Each department’s overhead consists primarily of depreciation and other machine-related expenses. Selected budgeted and actual data from the St. Falls plant for the past year are as follows.
Department A | Department B | ||||||
Budgeted department overhead | |||||||
(excludes plantwide overhead) | $ | 196,000 | $ | 559,000 | |||
Actual department overhead | 142,000 | 574,000 | |||||
Expected total activity: | |||||||
Direct labor hours | 36,000 | 10,000 | |||||
Machine-hours | 14,000 | 43,000 | |||||
Actual activity: | |||||||
Direct labor hours | 38,500 | 9,400 | |||||
Machine-hours | 14,500 | 45,000 | |||||
For the coming year, the accountants at St. Falls are in the process of helping the sales force create bids for several jobs. Projected data pertaining only to job no. 110 are as follows.
Direct materials | $ | 16,500 | |
Direct labor cost: | |||
Department A (2,000 hr) | 30,000 | ||
Department B (500 hr) | 10,000 | ||
Machine-hours projected: | |||
Department A | 140 | ||
Department B | 1,200 | ||
Units produced | 10,000 | ||
Assume the St. Falls plant uses three separate overhead rates to assign overhead costs to jobs.
b-1. Find the plant wide overhead rate by using expected machine hours.
b-2. Find the department overhead rate using expected machine hours for Department A and Department B.
b-2. Calculate the projected manufacturing costs for job 110 using the three separate rates computed in b-1 and b-2.
b1.
Plant wide overhead rate = Budgeted plant wide overhead / Expected machine hours
Plant wide overhead rate = $200,000 / 57,000 (14,000+43,000) = $3.50877 per machine hour
b2.
Department overhead rate = Budgeted department overhead / Expected machine hours
Department A = $196,000 / 14,000 = $14 per machine hour
Department B = $559,000 / 43,000 = $13 per machine hour
Job 110 | ||
Direct materials | $16,500 | |
Direct labor | ||
Department A | $30,000 | |
Department B | 10,000 | 40,000 |
Applied overhead | ||
Department A [$491(140*$3.50877)+1,960(140*$14) | 2,451 | |
Department B [$4,211(1200*$3.50877)+15600(1200*$13) | 19,811 | 22,262 |
Total manufacturing costs | $78,762 |
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