Question

Roman Sculpture Co. manufactures custom-designed garden accents and distributes their product internationally. The company used prior year data to forecast expected costs and expenses. They anticipated 52,560 machine hours and estimated direct labour cost of $964,000. At the end of the year, Roman Sculpture Co. had actually used 51,000 machine hours. The costs incurred were:

• Manufacturing plant and equipment depreciation: $408,000

• Plant property taxes: $22,000

• Direct labour: $889,000

• Materials (10% indirect): $400,000

• Salaries & Wages (Sales salaries: $9,000, Plant Maintenance staff wages: $18,500)

• New plant signage for COVID-19 restrictions: $9,000

• Training for all administrative staff: $3,000

The predetermined manufacturing overhead rate to allocate overhead to individual jobs is based on the machine hours required. At the beginning of the year, the company expected to incur a manufacturing overhead cost of $550,000.

1. Compute Roman Sculpture Co.’s predetermined manufacturing overhead rate.

2. Is manufacturing overhead underallocated or overallocated at the end of the year (be sure to specify howmuch and show all of your work on how you arrived to the conclusion)?

3. Interpret the result from item 2. Comment on the accuracy of the predetermined manufacturing overhead and if/what management should do to improve.

4. Comment and explain the following observation in your own words :

A. Job-costing systems tend to produce more accurate product costs information compared to process costing systems. On the other hand, they also tend to be more costly systems than processing costing systems.

B. A change in Roman Sculpture’s business model would need to occur for a different costing approach to be used.

Answer 1