Question

Southwick Products manufactures its products in two separate​ departments: Machining and Assembly. Total manufacturing overhead costs for the year are budgeted at $1,100,000. Of this​ amount, the Machining Department incurs $680,000 (primarily for machine operation and​ depreciation) while the Assembly Department incurs $420,000. The company estimates that it will incur 10,000 machine hours​ (all in the Machining​ Department) and 22,000 direct labor hours 8,000 in the Machining Department and 14,000 in the Assembly​ Department) during the year.

Southwick Products currently uses a plantwide overhead rate based on direct labor hours to allocate overhead.​However, the company is considering refining its overhead allocation system by using departmental overhead rates. The Machining Department would allocate its overhead using machine hours​ (MH), but the Assembly Department would allocate its overhead using direct labor​ (DL) hours. The following chart shows the machine hours​ (MH) and direct labor​ (DL) hours incurred by Jobs 500 and 501 in each production​ department:

	Machining		Assembly
	Department		Department
Job 500. . . .	10	MH	12 DL hours
	5	DL hours
Job 501. . . .	20	MH	12 DL hours
	5	DL hours

Both Jobs 500 and 501 used $1,800 of direct materials. Wages and benefits total $30 per direct labor hour.

Southwick Products prices its products at 110​% of total manufacturing costs.

Requirement 1. Compute the company's current plantwide overhead rate. (Round your answer to the nearest dollar.) Begin by determining the formula, then compute the rate. Plantwide overhead rate per DL hour / Requirement 2. Compute refined departmental overhead rates. Determining the formula, then compute the rates. (Round your answers to the nearest dollar.) =Departmental overhead rate per mach hour Machining per DL hour Assembly Requirement 3. Which job (Job 500 or Job 501) uses more of the company's resources? Explain. f the company's resources. machine hours than the other job. The accounting system should show that one job actually the other. Requirement 4. Compute the total amount of overhead allocated to each job if the company uses its current plantwide overhead rate. Job 500 Job 501 Total direct labor hours Plantwide allocation rate Requirement 5. Compute the total amount of overhead allocated to each job if the company uses departmental overhead rates. Job 500 Job 501 Overhead allocation Machining Department Overhead allocation Assembly Department Total overhead allocation Requirement 6. Do both of the allocation systems accurately reflect the resources each job used? Explain. Vof overhead to both jobs. The departmental rates assign Vto Job 501 than Job 500 due The single plantwide overhead rate assigned used. This seems to the Requirement 7. Compute the total manufacturing cost and sales price of each job using the company's current plantwide overhead rate. (Round amounts to the nearest dollar. Enter the percentage as a whole number.) Job 501 Job 500 Direct materials Direct labor Manufacturing overhead Total manufacturing costs Markup for pricing (%) % Sales price Requirement 8. Based on the current (plantwide) allocation system, how much profit did the company think it earned on each job? Calculate the gross profit using the current costing system. Job 500 Job 501 Sales price Less: Total manufacturing costs Gross profit /(loss) Based on the departmental overhead rates and the sales price determined in Requirement 7, how much profit did the company really earn on each job? Calculate the gross profit using the departmental rate costing system. (Use parentheses or a minus sign to show losses.) Job 500 Job 501 Sales price Less: Total manufacturing costs: Direct materials Direct labor Manufacturing overhead Gross profit/(loss) Requirement 9. Compare and comment on the results you obtained in Requirements 7 and 8. When utilizing a single rate allocation method, Southwick believes that When utilizing a refined costing method, Southwick realizes that

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first four questions should be answered. Kindly take note of it.

Part 1

Total manufacturing overhead	/	Total direct labor hours	=	Plant wide overhead rate
$1,100,000	/	22000	=	$50 per DL hour

Part 2

	Total departmental overhead cost	/	Total departmental allocation base	=	departmentaloverhead rate
Machining	$680,000	/	10,000		$68 per mach hour
Assembly	$420,000	/	14,000		$30 per DL hour

Part 3

Job 501 uses more

Job 501 uses more machine

actually "costs" the company more resources than the other.

(The determination of resources used by the company is done on the basis of the number of direct labor hours and machine hours used by each job. It should be noted that using machine includes utilities, depreciation, and repairs and maintenance.)

Part 4

	Job 500	Job 501
Total direct labor hours	12	12
x Plantwide overhead rate	$50	$50
Overhead allocation	$600	$600