Question

Bob’s Electronics Inc. manufactures high-tech screens for computers. In June, the two production departments had budgeted allocation bases of 13,000 machine hours in Department 1 and 7,100 direct manufacturing labour hours in Department 2. The budgeted manufacturing overheads for the month were $55,900 and $41,890, 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 1,600 machine hours in Department 1 and 900 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?      (4 marks)

2. What is the budgeted indirect cost allocation rate for Department 2?      (4 marks)

3. What is the total cost assigned to Job 101 based on normal costing?       (5 marks)

Answer 1

Answer:
1)
Budgeted indirect cost allocation rate for Department 1             = Budgeted manufacturing overheads / Budgeted machine hours             = $ 55,900 / 13,000 Machine Hours             =   $ 4.30 per Machine Hour
2)
Budgeted indirect cost allocation rate for Department 2             = Budgeted manufacturing overheads / Budgeted Labor Hours             =   $ 41,890 / 7,100 Direct Labor Hours             =    $ 5.90 per Direct Labor Hour
3)
Particulars	Department-1	Department -2
Direct Material Used	$ 12,500	$ 9,100
Direct Labour	$ 32,500	$ 32,200
Applied Manufacturing Overhead	$ 6,880 ( 1,600 MH x $ 4.30 )	$ 5,310 ( 900 DLH x $ 5.90 )
Total Cost Assigned to Job 1	$ 51,880	$ 46,610