Question

The Gilster Company, a machine tooling firm, has several plants. One plant, located in St. Falls, Minnesota, uses a job order costing system for its batch production processes. The St. Falls plant has two departments through which most jobs pass. Plantwide overhead, which includes the plant manager’s salary, accounting personnel, cafeteria, and human resources, is budgeted at $250,000. During the past year, actual plantwide overhead was $240,000. Each department’s overhead consists primarily of depreciation and other machine-related expenses. Selected budgeted and actual data from the St. Falls plant for the past year are as follows.

	Department A				Department B
Budgeted department overhead
(excludes plantwide overhead)	$	150,000			$	600,000
Actual department overhead		160,000				620,000
Expected total activity:
Direct labor hours		35,000				15,000
Machine-hours		10,000				40,000
Actual activity:
Direct labor hours		51,000				9,000
Machine-hours		10,500				42,000

For the coming year, the accountants at St. Falls are in the process of helping the sales force create bids for several jobs. Projected data pertaining only to job no. 110 are as follows.

Direct materials	$	25,000
Direct labor cost:
Department A (2,200 hr)		45,000
Department B (800 hr)		10,000
Machine-hours projected:
Department A		200
Department B		1,200
Units produced		10,000

f. Would your response to part e change if the St. Falls plant could use the facilities necessary to produce parts for job no. 110 for another job that could earn an incremental profit of $20,000?

Yes

or

No

Answer 1

Yes.

If the St. Falls plant could use the facilities necessary to produce parts for job no. 110 for another job, then the company's Total Profit will increase by $8,000 ($20,000 -  $12,000).