Question

Allen

Furnishings manufactures upscale custom furniture.

AllenAllen

Furnishings currently uses a plan twide overhead rate based on direct labour hours to allocate its

$1,170,000

of manufacturing overhead to individual jobs.​ However, Werner

Allen​,

owner and​ CEO, is considering refining the​ company's costing system by using departmental overhead rates.​ Currently, the Machining Department incurs

$725,000

of MOH while the Finishing Department incurs

$445,000

of MOH. Ernie has identified machine hours​ (MH) as the primary MOH cost driver in the Machining Department and direct labour​ (DL) hours as the primary cost driver in the Finishing Department.

The

Allen

Fine Furnishings plant completed Jobs 450 and 455 on May 15. Both jobs incurred a total of

9

DL hours throughout the entire production process. Job 450 incurred

3

MH in the Machining Department and

6

DL hours in the Finishing Department. Job 455 incurred

5

MH in the Machining Department and

4

DL hours in the Finishing Department.

Requirement 1

Compute the plantwide overhead rate assuming that

Allen

expects to incur

26,000

total DL hours during the year.

First identify the​ formula, and then compute the rate.

Requirement 2. Compute departmental overhead rates assuming that

Allen

expects to incur

14,500

MH in the Machining Department and

17,800

DL hours in the Finishing Department during the year.

First identify the​ formula, and then compute the rate for each department.

Requirement 3. If

Allen

continues to use the plantwide overhead​ rate, how much manufacturing overhead would be allocated to Job 450 and Job​ 455?

First identify the​ formula, and then calculate the amount of manufacturing overhead that would be allocated to the jobs if the plantwide overhead rate is used.

Requirement 4. If

Allen

uses departmental overhead​ rates, how much MOH would be allocated to Job 450 and Job​ 455?

Use the following table to calculate the amount of manufacturing overhead that would be allocated to the jobs if the departmental overhead rates are used. ​(Round your interim and final answers to the nearest whole​ dollar.)

Requirement 5. Based on your answers to Requirements 3 and​ 4, does the plantwide overhead rate overcost or undercost either of the​ jobs? Explain. If

Allen

sells his furniture at​ 125% of​ cost, will his choice of allocation systems affect product​ pricing? Explain.

Answer 1