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Question la) Divine Products uses a job-costing system for its units, which pass from the Machining Assembly Department, to finished-goods inventory. The Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company uses machine hours to apply manufacturing overhead to products in the Machining Department, and direct labour cost to apply manufacturing overhead to products in the Assembly Department. The following information relates to the Machining Department for the year just ended: Budgeted manufacturing overhead RM12,000,000 RM12,142,000 800,000 hours 794,000 hours Budgeted machine hours Actual machine hours The Machining Department data that follow pertain to job no. 775, the only job in production at year-end. _ Direct materials Direct labour cost Machine hours RM125,000 RM61,800 PoHR Bdgst 550 hours i. Calculate the predetermined overhead rate that is used in the Machining Department. Ott 00o,0 Required (2 marks) ii. Compute the cost of the Machining Departments year-end work-in-process inventory (3 marks) iii. Determine the amount that overhead was under- or overapplied during the year in the 3 marks) iv. Based on (iii) above, if Divine disposes of the Machining Departments under- or Machining Department. Indicate whether it is overapplied or underapplied. overapplied overhead as an adjustment to Cost of Goods Sold, would the companys Cost-of-Goods-Sold account increase or decrease? Explain. 2 marks) Comment on the appropriateness of direct labor cost to apply manufacturing overhead in the Assembly Department. v. (2 marks)
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Answer i Budgeted Manufacturing Overhead Budgeted Machine Hours Predetermined OH rate- 12,000,000 800,000 15.00 lper machine hour Answer i Direct Material Direct Labor Cost Manufacturing OH (550 hours x $15) 125,000 61,800 8,250 Answer iii Overhead applied 794,000 x $15 Actual OH Under applied 11,910,000 12,142,000 232,000 Answer iv Cost of Goods Sold Manufacturing Overhead 232,000 232,000 COGS will increase Answer v The firms selection of application bases is likely appropriate. The bases should drive the costs, meaning there should be a strong cause-and-effect relationship between the base that is used and the amount of overhead incurred in the Assembly Department, a considerable portion of the overhead incurred is related to manual-assembly (i.e., labor) operations

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