Major Assignment-ACFI2003 - 1.1).The overhead charged to...

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1.1).The overhead charged to the job 2785 will be:Predetermined plant wide rate= $900,000(Overhead Cost)/90000(Direct labourHours)= $10 per direct labor hourAll direct labour was paid $10 per DLH.Job 2785:Job 2785$Material cost22,000Direct labour costFabrication12,000Assembly7,400Manufacturing overheadFabrication12,000(12,000/$10) x $10 per DLHAssembly4,300(7,400/$10) x $10 per DLHTotal$60,8001.2).The overhead charged to the job 2785 will be:Depatments overhead rates (Fabrication)= $600,000(OHC)/40,000(DLH)= $15 per DLHDepatments overhead rates (Assembly)= $300,000(OHC)/50,000 (DLH)= $6 per DLHJob 2785$Material cost22,000Direct labor costsFabrication12,000Assembly7,400Manufacturing overheadFabrication18,000(12,000/$10) x $15 per DLHAssembly4,440(7,400/$10) x $6 per DLHTotal$63,8401.3).The predetermined plantwide rate applied to job orders and is often calculated by dividing thetotal overhead cost by the selected allocation base (90,000 direct labour hour), which is $10per direct labor hour. It is the simplest approach that includes all overhead costs so that asingle plantwide overhead rate can be computed and applied to product overhead (Barth,2008). Furthermore, plant-wide allocation allocates actual overhead by using direct labor hours asthe activity base, although using this method is not very accurate (Lanen, Anderson, & Maher,2013). This method is mainly used by businesses that have a strong single cost driver that issimilar for all products in all departments (Kaplan & Atkinson, 1998).
Departmental overhead rates are represented by each overhead costs linked with the differentdepartments, it is then applied to products using a calculated allocation rate (Barth, 2008).This method is appropriate for businesses that have multiple products using resourcesdifferently (Lanen, Anderson, & Maher, 2013). The use of this method of calculations affectthe pricing of products which in turn affects the profit of the business (Kaplan & Atkinson,1998).The allocation base for Jackson industries is direct labor hours, thus theoverhead cost that isconnected to Job 2785 is culculated by multiplying the predetermined overhead rate by thequantity of direct labor-hours charged to this job. Below is a illustration of how the figureswere derived and how resources was consumed.Using Plant-wide rate:Fabrication manufacturing overhead: $12,000Assembly manufaction overhead: $7,400Total MOH using Plantwide rate = $19,400Using department rate:Fabrication manufacturing overhead: 1,200 hours x $15 per DLH = $18,000Assembly manufaction overhead: 740 hours x $6 per DLH = $4,440Total MOH using department rate = $22,440The purpose of the plantwide and departmental approaches is to apply MOH costs to productsso as to produce identitcal cost of good sold figure. These two approaches however have leadto different totals. This is due to the Fabrication department. The rate is $6,000 higher than thevalue obtained using the plantwide rate. This is due to the fact that Job 2785 is an intensiveuser of Fabrication labor hours hence has a higher DLH rate. The overhead rate in Fabrication($15) is higher than the overhead rate in Assembly ($6) which further confirms that job 2785 isan intensive user of labout hours.

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