Question

Overhead Applied to Jobs, Departmental Overhead Rates Xania Inc, uses a normal job-order costing system. Currently, a plantwide overhead rate based on machine hours is used. Xania's plant manager has heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. Xania has the following data for its two departments for the coming year: Department A Department B Overhead costs (expected) Normal activity (machine hours) $75,000 14,500 $81,000 11,800 Required: 1. Compute a predetermined overhead rate for the plant as a whole based on machine hours. Round your answer to two decimal places. per machine hour 2. Compute predetermined overhead rates for each department using machine hours. (Note: Round to two decimal places, if necessary.) Department A per machine hour Department B per machine hour

Answer 1

Answer) Particulars Overhead costs Normal actovity (machine hrs) Department A Department B total $ 75,000.00 $ 81,000.00 $1,56,000.00 14500 11800 26300 Req 1 ans) overall machine hour over head rate = Total Overhead cost / total hours 156000/26300 5.93 Req 2Ans) Computation of machine hour rate department wise Particulars Overhead costs Normal actovity (machine hrs) cost per machine hour (A/B) Department A Department B $ 75,000.00 $ 81,000.00 14500 11800 $ 5.17 $ 6.86

Req 3 Ans) Particulars job 73 machine hours Working job 74. machine hours Working Amount Amount Plant wide Dep -A Dep-B Total 20 20*5.93 50 50*5.93 118.60 296.50 415.10 50 50*5.93 20 20*5.93 296.50 118.60 415.10 Deparment wide Dep -A. Dep-B Total 20 20*5.17 50 50*6.86 103.4 343 446.40 50 50*5.17 20 20*6.86 258.5 137.2 395.70

Req 4 Ans) Particulars job 73 machine hours Working job 74. machine hours Working Amount Amount Plant wide Dep -A Dep-B Total 20 20*6.88 50 50*6.88 137.60 344.00 50 50*6.88 20 20*6.88 344.00 137.60 481.60 481.60 Deparment wide Dep -A Dep-B Total 20 20*5.17 50 50*8.98 103.4 449 552.40 50 50*5.17 20 20*8.98 258.5 179.6 438.10 Working notes = Total cost = 75000+106000 Total Machine hours Overall overhead rate department brate = 106000/11800 8.98 Department A rate does not change 181000 26300 hrs 6.88 =
Conclusion : Company better to opt for departmental rates these amount are more accurate than blanket rate.

the overall rate does not differentiate in req-3 both jobs having same cost where as in case departmental rate used we see the difference. thats why departmental rate method was more accurate.