Question

In: Accounting

Xania Inc. uses a normal job-order costing system. Currently, a plantwide overhead rate based on machine hours is used.

 

Xania Inc. uses a normal job-order costing system. Currently, a plantwide overhead rate based on machine hours is used. Xania’s plant manager has heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. Xania has the following data for its two departments for the coming year:

  Department A Department B
Overhead costs (expected) $110,000   $78,000  
Normal activity (machine hours) 13,500   15,800  

Required:

1. Compute a predetermined overhead rate for the plant as a whole based on machine hours. Round your answer to two decimal places.
$ per machine hour

2. Compute predetermined overhead rates for each department using machine hours. (Note: Round to two decimal places, if necessary.)

Department A $ per machine hour
Department B $ per machine hour

3. Conceptual Connection: Job 73 used 20 machine hours from Department A and 50 machine hours from Department B. Job 74 used 50 machine hours from Department A and 20 machine hours from Department B. Compute the overhead cost assigned to each job using the plantwide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Round final answers to the nearest cent, if necessary.

  Job 73 Job 74
Plantwide $ $
Departmental $ $

Which of the two approaches gives the fairer assignment?
Departmental rates

4. Conceptual Connection: Repeat Requirement 3, assuming the expected overhead cost for Department B is $103,000 (not $78,000). Round overhead rates to the nearest cent.

  Job 73 Job 74
Plantwide $ $
Departmental $ $

For this company, would you recommend departmental rates over a plantwide rate?
Yes

  

Solutions

Expert Solution

 

Xania Inc.        
Answer 1        
Calculation of single plant wide OH Rate Dept. A Dept. B Total Note
Machine Hours        13,500.00        15,800.00        29,300.00 A
Overhead costs      110,000.00        78,000.00      188,000.00 B
Plant wide OH Rate                      6.42 C=B/A
         
Answer 2        
Calculation of departmental OH Rate Dept. A Dept. B Total Note
Machine Hours        13,500.00        15,800.00        29,300.00 See A
Overhead costs      110,000.00        78,000.00      188,000.00 See B
Departmental OH Rate                  8.15                  4.94   E=B/A
         
Answer 3. 1        
Overhead applied to Job 73 Dept. A Dept. B Total Note
Machine Hours                20.00                50.00                70.00 F
Plant wide OH Rate                      6.42 See C
Overhead applied to Job 73                  449.00 G=F*C
         
Overhead applied to Job 74 Dept. A Dept. B Total Note
Machine Hours                50.00                20.00                70.00 H
Plant wide OH Rate                      6.42 See C
Overhead applied to Job 74                  449.00 I=H*C
         
Answer 3. 2        
Overhead applied to Job 73 Dept. A Dept. B Total Note
Machine Hours                20.00                50.00   See F
Departmental OH Rate                  8.15                  4.94   See E
Overhead applied to Job 73              163.00              247.00              410.00 J=F*E
         
Overhead applied to Job 74 Dept. A Dept. B Total Note
Machine Hours                50.00                20.00     See H
Departmental OH Rate                  8.15                  4.94   See E
Overhead applied to Job 74              408.00                99.00              507.00 K=H*E
         
Answer 4        
Calculation of single plant wide OH Rate Dept. A Dept. B Total Note
Machine Hours        13,500.00        15,800.00        29,300.00 See A
Overhead costs      110,000.00      103,000.00      213,000.00 L
Plant wide OH Rate                      7.27 M=L/A
         
Calculation of departmental OH Rate Dept. A Dept. B Total Note
Machine Hours        13,500.00        15,800.00        29,300.00 See A
Overhead costs      110,000.00      103,000.00      213,000.00 See L
Departmental OH Rate                  8.15                  6.52   D=L/A
         
Overhead applied to Job 73 Dept. A Dept. B Total Note
Machine Hours                20.00                50.00                70.00 See F
Plant wide OH Rate                      7.27 See M
Overhead applied to Job 73                  509.00 N=M*F
         
Overhead applied to Job 74 Dept. A Dept. B Total Note
Machine Hours                50.00                20.00                70.00 See H

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