Question

Pls do not handwrite the answer, this is for easy reading

Question 4)
EHealth Pte Ltd manufactures wearable health monitors. These monitors tell heart rates and other vital measurements like blood pressure. One of EHealth's products, a waistband monitor, is produced in two departments - A and B. The production process in department A uses mainly machines. In contrast, department B uses mainly skilled workers to assemble and package the product.

Production is budgeted to occur evenly throughout the year. The annual budgeted machine hours for department A and B are 60,000 and 15,000 respectively. The annual budgeted direct labour hours for department A and B are 4,000 and 30,000 respectively. The estimate annual manufacturing overhead budget for EHealth is 537,000. For the month of August 2016, the budgeted manufacturing overhead for department A and B were $18,500 and $26,250 respectively.
Job 112, a batch of waistband monitors, was started and completed in August 2016 The table below contains partial actual costs incurred in the 2 departments in August:
Department A ($) Department B ($)
Direct materials used (for job 112) Department A $: 225.500 , Department B ($) 33,500
Direct manufacturing labour (for job 112) Department A $20.500 , Department B ($) 300,500
Indirect manufacturing labour (for job 112) Department A $: 500 Department B ($) 2,000
Indirect materials used (for job 112) Department A $: 500 , Department B ($) 7,250.00
Lease equipment Department A $: 17.250 , Department B ($)  3,250
Utilities Department A $:    2,000 , Department B ($)   22,250

In total, Job 112 incurred 750 machine-hours(two-thirds incurred in department A) and 60 direct labour hours (two-thirds incurred in department B). The company uses a normal costing system and department overhead rates for applying overheads.
Required:
a)Compute the manufacturing overhead rate used for each department for August 2016.
b)Based only on available information, prepare the necessary journal entries to summarize the transactions in department A(Narrations are not required)
c) Compute the total cost for job 112. If EHealth wishes to make a 35% profit margin on job 112, how much should it charge for Job 112? (Give your answer to the nearest dollar.)
d)EHealth used to apply manufacturing overheads to its products using a plant-wide rate based on machine hours. Andre, the company's director of manufacturing, felt that the old method led to uncompetitive pricing. He believed the current department rates have resulted in more competitive pricing. Using Job 112 as an example, discuss if Andre is correct. Support your answer with relevant computations.

Answer 1

a) Overhead rate for Department A: $18500/(60000/12) = $18500/5000 = $3.70 per machine hour

Overhead rate for Department B: $26250/(30000/12) = $26250/2500 = $10.50 per direct labor hour

b)

General Journal	Debit	Credit
Work in process-Department A	225500
Raw materials inventory		225500
Work in process-Department A	20500
Wages payable		20500
Manufacturing overhead-Department A	500
Wages payable		500
Manufacturing overhead-Department A	500
Raw materials inventory		500
Manufacturing overhead-Department A	17250
Accounts payable/Cash		17250
Manufacturing overhead-Department A	2000
Accounts payable/Cash		2000
Work in process-Department A	1850
Manufacturing overhead-Department A		1850
(750 x 2/3 x $3.70)

c)

Job 112
Direct materials	259000
Direct labor	321000
Manufacturing overheads:
Department A (750 x 2/3 x $3.70)	1850
Department B (60 x 2/3 x $10.50)	420
Total cost $	582270
Mark-up 35%	203795
Sales price $	786065

d) Andre is correct as the pricing using a plant-wide overhead rate is much higher than that using department rates due to which the products would be uncompetitive.

Job 112
Direct materials	259000
Direct labor	321000
Manufacturing overheads (750 x $7.16)	5370
Total cost $	585370
Mark-up 35%	204880
Sales price $	790250

Plant-wide manufacturing overhead rate = $537000/75000 = $7.16