JobOrder Costing Calculating Unit Product Costs ROBLEM 221 P

Job-Order Costing: Calculating Unit Product Costs ROBLEM 2-21 Plantwide Versus Muitiple Predetermined Overhead Rates LO2-1. LO2-2 on Company 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 MachiningAssembly Total Manufacturing overhead Direct labor-hours Machine hours $500.000 $100,000 $600.000 60.000 55.000 10,000 50,000 50,000 5,000 Job A Direct labor-hours Machine hours Machining Assembly Total 5 10 15 Machining Assembly Total Job B Direct labor-hours Machine hours 4 Required 1. If Mason Company uses a plantwide predetermined overhead rate with diret labor-hours a the location base, how much manufacturing overhead cost would be applied to Job A? Job B Assume that Mason Company uses departmental predetermined overhead rates. The Machin ng Department is allocated based on machine-hours and the Assembly Department is allo- cated basedon direct labor-hour How much manufacturing overhead cost would be applied to Job A\"Job B , 3. I Mason multiplies its job costs by a markup percentage to establish selling prices, how might lantwide overhead allocation adversely affect the company\'s pricing decisions? Connect Case

Solution

Answer:

1

The plantwide predetermined overhead rate is computed as follows:

Estimated manufacturing overhead (a)

600,000

Estimated total direct labor-hours (b)

60,000

DLHs

Predetermined overhead rate (a) ÷ (b)

10

per DLH

The overhead applied to Job A is computed as follows:

Direct labor-hours worked on Job A (a)

15

Predetermined overhead rate (b)

10

per DLH

Overhead applied to Job A (a) × (b)

150

The overhead applied to Job A=$150

The overhead applied to Job B is computed as follows:

Direct labor-hours worked on Job B (a)

9

Predetermined overhead rate (b)

10

per DLH

Overhead applied to Job B (a) × (b)

90

The overhead applied to Job B=$90

________________________________________________________

2

The predetermined overhead rate in Machining is computed as follows:

Estimated manufacturing overhead (a)

500,000

Estimated total machine-hours (b)

50,000

MHs

Predetermined overhead rate (a) ÷ (b)

10

per MH

The predetermined overhead rate in Assembly is computed as follows:

Estimated manufacturing overhead (a)

100,000

Estimated total direct labor-hours (b)

50,000

DLHs

Predetermined overhead rate (a) ÷ (b)

2

per DLH

The overhead applied to Job A is computed as follows:

Machining

Assembly

Total

Quantity of allocation base used (a)

11

10

Predetermined overhead rate (b)

10

2

Overhead applied to Job A (a) × (b)

110

20

130

The overhead applied to Job A=$130

The overhead applied to Job B is computed as follows:

Machining

Assembly

Total

Quantity of allocation base used (a)

12

5

Predetermined overhead rate (b)

10

2

Overhead applied to Job B (a) × (b)

120

10

130

The overhead applied to Job B =$130

_____________________________________________________________________

3

By multiplying Job cost by mark-up percentage there will be adverse effect on the pricing decision of the company because the overhead are applied on the basis of plant wide overhead allocation

For the Job A Cost applied for Job A is $150 as per plant wide overhead allocation but if we allocate the rate as per particular department overhead allocation it is $130 so if mark up % is basis on the plant wide overhead rate then un necessarily the selling price will be high then the selling price required

For the Job A Cost applied for Job B is $90 as per plant wide overhead allocation but if we allocate the rate as per particular department overhead allocation it is $130 so if mark up % is basis on the plant wide overhead rate then un necessarily the selling price will be lower then the selling price required

So multiplying Job cost by mark-up percentage of plant wide overhead rate will adverse effect on the pricing decision of the company

Estimated manufacturing overhead (a)	600,000
Estimated total direct labor-hours (b)	60,000	DLHs
Predetermined overhead rate (a) ÷ (b)	10	per DLH