Question

Overhead Applied to Jobs, Departmental Overhead Rates Watson Products Inc. uses a normal job-order costing system. Currently, a plantwide overhead rate based on machine hours is used. Marlon Burke, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. Watson has the following data for its two departments for the coming year: Department B Department A $2,660,000 140,000 Overhead costs (estimated) Normal activity (machine hours) $924,000 84,000 Required: 1. Calculate a predetermined overhead rate for the plant as a whole based on machine hours. per machine hour 2. Compute predetermined overhead rates for each department using machine hours. (Carry your calculations out to three decimal places.) Department A $ per machine hour Department B per machine hour

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Answer 1

Requirement 1 Total Overhead Cost (A) Total machine Hours (B) $ 35,84,000.00 224000 Predetermined overhead rate for plant (A/L) $ 16.00 Per Machine hour Requirement 2 Overhead Cost (A) machine Hours (B) Department A Department B $ 26,60,000.00 $ 9,24,000.00 140000 84000 Predetermined overhead rate : Dept wise(A/b) $ 19.00 $ 11.00 Requirement 3 Job 74 Plantwide Departmental Job 73 1,600,00 1,420,00 1,600.00 1,580.00 Departmental Approach gives the Fairer assignment Departmental approach gives fairer assignment because, the overhead can be clearly allocated for number of machine hours used from respective department in different jobs Requirement 4 Working : Total Overhead Cost (A) Total machine Hours (B) $ 42,56,000.00 224000 Predetermined overhead rate for plant (A/b) $ 19.00 Per Machine hour Overhead Cost (A) machine Hours (B) Department A Department B $ 26,60,000.00 $ 15,96,000.00 140000 84000 Predetermined overhead rate : Dept wise(A/b) $ 19.00 $ 19.00 Job 74 Plantwide Departmental Job 73 1,900.00 1,900.00 1,900.00 1,900.00 Yes, Would recommmend departmental rates over a plantwide rate Requirement 5 Departmental approach gives fairer assignment because, the overhead can be clearly allocated for number of machine hours used from respective department in different jobs Note: It would be more helpful if you provided the dropdown list for 3&4 Comment that list, ill give proper solution