Question

Bob’s Electronics Inc. manufactures high-tech screens for computers. In June, the two production departments had budgeted allocation bases of 8,600 machine hours in Department 1 and 5,970 direct manufacturing labour hours in Department 2. The budgeted manufacturing overheads for the month were $32,000 and $27,500, respectively. For Job 101, the actual costs incurred in the two departments were as follows:

	Department 1	Department 2
Direct materials purchased on account	$66,000	$106,500
Direct materials used	12,500	9,100
Direct manufacturing labour	32,500	32,200
Indirect manufacturing labour	6,600	5,400
Indirect materials used	4,500	2,850
Lease on equipment	9,750	2,250
Utilities	600	750

Job 101 incurred 1,100 machine hours in Department 1 and 400 manufacturing labour hours in Department 2. The company uses a budgeted departmental overhead rate for applying overhead to production.

1. What is the budgeted indirect cost allocation rate for Department 1?       (2 marks)

2. What is the budgeted indirect cost allocation rate for Department 2?       (2 marks)

3. What is the total cost assigned to Job 101 based on normal costing?         (2 marks)

Answer 1

Solution:

a)

Budgeted indirect cost allocation rate for Department 1 = Budgeted manufacturing overhead cost/ Expected machine hour in department

=$32,000/8,600

=$3.7 per labour hour

b)

Budgeted indirect cost allocation rate for Department 2 = Budgeted manufacturing overhead cost/ Expected machine hour in department

=$27,500/5,970

=$4.6 per labour hour

c)

Computation of total cost assigned to Job 1:

Particulars	Department 1	Department 2
Direct material used	$12,500	$9,100
Direct manufacturing labor	$32,500	$32,200
Applied manufacturing overhead	$4,070 (1,100*$3.7)	$1,840 (400*4.6)
Total cost assigned	$49,070	$43,140

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