Sunshine Equipment uses a job-order costing system in which predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Assembly Department is based on machine- hours, and the rate in the Finishing Department is based on direct labour cost. At the beginning of the year, the company\'s management made the following estimates Department Machine-hours Direct materials cost . _ _ _ . . _ _ . . . Direct labour cost Manufacturing overhead cost Assembly 24,000 140,000 $1,020,000 $260,000 $1,204,000 Finishing 120,000 16,000 $1,300,000 $840,000 $1,470,000 Job 107 was started on September 5 and completed on September 20. The company\'s cost records show the following information concerning the job Department Direct labour-hours . . . . - Machine-hours Materials placed into production Assembly 60 220 $940 $580 Finishing 170 40 $664 $1360 . Required (a) Compute the predetermined overhead rate used during the year in the Assembly Department. Compute the rate used in the Finishing Department. (3 Marks) (b) Compute the total overhead cost applied to Job 107. (3 Marks) (c) What would be the total cost recorded for Job 107? If the job contained 100 units, what would be the unit product cost? (3 Marks) (d) At the end of the year, the records of Sunshine Equipment revealed the following actual cost and operating data for all jobs worked on during the year Department Assembly 20,000 130,000 $860,000 $216,000 $1,140,000 Finishing 124,000 18,000 $1,360,000 $872,000 $1,500,000 Machine-hours Manufacturing overhead cost What was the amount of under or overapplied overhead in each department at the end the year? (3 Marks)
Solution a:
Predetermined overhead rate - Assembly department = Estimated overhead /Estimated machine hours
= $1,204,000 / 140000 = $8.60 per hour
Predetermined overhead rate - Finishing department = Estimated overhead / Estimated direct labor cost
= $1,470,000 / $840,000 = $1.75 per direct labor dollar
Solution b:
Overhead cost applied to Job 107:
Assembly department = 220 * $8.60 = $1,892
Finishing department = $1,360 * $1.75 = $2,380
Total overhead cost applied to Job 107 = $1,892 + $2,380 = $4,272
Solution c:
Solution d:
Applied overhead:
Assembly department = 130000 * $8.60 = $1,118,000
Finishing department = $872,000 * $1.75 = $1,526,000
Actual overhead incurred:
Assembly = $1,140,000
Finishing = $1,500,000
Underapplied (Overapplied overhead): Actual overhead incurred - Overhead applied
Assembly = $1,140,000 - $1,118,000 = $22,000
Finishing = $1,500,000 - $1,526,000 = ($26,000)
| Computation of Total Cost of Job 107 and unit product cost |
| Particulars | Assembly | Finishing | Total |
| Materials placed into production | $940.00 | $664.00 | $1,604.00 |
| Direct labor cost | $580.00 | $1,360.00 | $1,940.00 |
| Manufacturing overhead | $1,892.00 | $2,380.00 | $4,272.00 |
| | | |
| Total Cost for Job 107 | $3,412.00 | $4,404.00 | $7,816.00 |
| Nos of units | | | 100 |
| | | |
| Unit Product Cost | | | $78.16 |
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