Question

The Lowell Company uses a normal job-costing system at its Minneapolis plant. The plant has a machining department and an assembly department. Its job-costing system has two direct-cost categories (direct materials and direct manufacturing labor) and two manufacturing overhead cost pools (the machining department overhead, allocated to jobs based on actual machine-hours, and the assembly department overhead, allocated to jobs based on actual direct manufacturing labor costs). The 2017 budget for the plant is as follows: E (Click the icon to view the budget data.) Read the requirements. Requirement 1. Identify the components of the overview diagram of Lowell's job-costing system. Compute the budgeted manufacturing ovetead rate for each department. (Abbreviations used: Manuf. = manufacturing.) Machining Assembly B. } Choose from any drop-down list and then click Check Answer.

Answer 1

1.

Components as follows:
A	Indirect Cost Pool
B	Machining Department Manufacturing Overhead
C	Assembly Department Manufacturing Overhead
D	Cost Allocation Base
E	Machine hours
F	Direct Manufacturing Labor Cost
G	Cost object product
H	Indirect cost
I	Direct cost
J	Direct cost
K	Direct materials
L	Direct Manufacturing Labor

Compute the budgeted manufacturing overhead rate:

Machining department overhead = Manufacturing overhead  $\div$ Machine hours

= $1,800,000 $\div$ 50,000 hrs

= $36 per machine-hour

Assembly department overhead = Manufacturing overhead  $\div$ Direct manufacturing labor cost

= $3,800,000 $\div$ $2,000,000

= 190% of direct manuf. labor cost

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2.

	Amount
Machining department overhead allocated (2,700 hrs × $36)	$97,200
Assembly department overhead allocated (190% × $20000)	$38,000
Total manufacturing overhead allocated to Job 494	$135,200

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3.

	Machining department	Assembly department
Actual manufacturing overhead	$2,100,000	$3,900,000
Manufacturing overhead allocated ($36 × 55,000 machine-hours)	$1,980,000	-
Assembly department overhead allocated (190% × $2,100,000)	-	$3,990,000
Underallocated (Overhead)	$120,000	($90,000)