Jordan Company currently is using a plantwide factory overhe

Jordan Company currently is using a plant-wide factory overhead rate based on machine hours. The budgeted factory overhead costs is $405,000. Company has two departments, X and Y. Company is considering use of departmental overhead rates for the allocation of each departments’ overhead costs to jobs. Overhead would be applied based on direct labor cost in Department X and machine-hours in Department Y. The following additional information is available:

Budgeted Amounts                           Department X           Department Y

Direct labor cost                                          $180,000                     $165,000

Factory overhead                                         $225,000                     $180,000

Machine-hours                                           51,000 mh                   40,000 mh

Actual data for Job #10                   Department X           Department Y

Direct materials requisitioned                        $10,000                      $16,000

Direct labor cost                                            $11,000                       $14,000

Machine-hours                                             5,000 mh                     3,000 mh

1. Compute total cost of manufacturing Job 10 under current system (using plant-wide rate).

2. Compute total cost of manufacturing Job 10 using departmental overhead rates.

Solution

WORKING NOTE 1 – CALCULATION OF PLANT WIDE RATE

TOTAL BUDGETED FACTORY OVERHEAD =225000+180000

                                                                            =405000

TOTAL BUDGETED MACHINE HOURS = 51000+40000

                                                                      =91000

PLANT WIDE RATE = 405000/91000

                                     =4.451 (ROUNDED OFF)

WORKING NOTE 2 – CALCULATION OF FACTORY OVERHEAD BASED ON ACTUAL DATA

DEPARTMENT - X

DEPARTMENT - Y

MACHINE HOURS (ACTUAL)

5000

3000

PLANT WIDE RATE (WN -1)

4.451

4.451

FACTORY OVERHEAD

22255 (5000*4.451)

13353 (3000*4.451)

WORKING NOTE 3 – CALCULATION OF TOTAL COST

PERTICULARS

DEPARTMENT - X

DEPARTMENT - Y

TOTAL

DIRECT METERIAL

10000

16000

26000

DIRECT LABOUR COST

11000

14000

25000

FACTORY OVERHEAD(WN-2)

22255

13353

35608

TOTAL

43255

43353

86608

TOTAL COST OF MANUFACTURING JOB 10 UNDER PLANT WIDE RATE = $86608

WORKING NOTE 1 – CALCULATION OF DEPARTMENTAL OVERHEAD RATE

DEPARTMENT - X

DEPARTMENT - Y

BUDGETED FACTORY OVERHEAD

225000

180000

BUDGETED DIRECT LABOUR COST

180000

     -

BUDGETED MACHINE HOURS

   -

40000

OVERHEAD RATE

1.25 (225000/180000)

4.5 (180000/40000)

WORKING NOTE 2 – CALCULATION OF FACTORY OVERHEAD BASED ON ACTUAL DATA

DEPRTMNT - X

DEPRTMNT - Y

OVERHEAD RATE

1.25

4.5

DIRECT LABOUR COST (ACTUAL)

11000

   -

MACHINE HOURS (ACTUAL)

   -

3000

FACTORY OVERHEAD

13750 (1.25*11000)

13500 (4.5*3000)

WORKING NOTE 3 – CALCULATION OF TOTAL COST USING DEPARTMENTAL OVERHEAD RATE

PERTICULARS

DEPARTMENT - X

DEPARTMENT - Y

TOTAL

DIRECT METERIAL

10000

16000

26000

DIRECT LABOUR COST

11000

14000

25000

FACTORY OVERHEAD(WN-2)

13750

13500

27250

TOTAL

34750

43500

78250

TOTAL COST OF JOB 10 USING DEPARTMENTAL OVERHEAD RATE - $78250

	DEPARTMENT - X	DEPARTMENT - Y
MACHINE HOURS (ACTUAL)	5000	3000
PLANT WIDE RATE (WN -1)	4.451	4.451
FACTORY OVERHEAD	22255 (5000*4.451)	13353 (3000*4.451)