Reference no: EM132627127
Cutting department
Budgeted manufacturing overhead $ 60,000
Actual manufacturing overhead 54,000
Budgeted machine hours 24,000
Actual machine hours 27,000
Budgeted direct labour hours 30,000
Actual direct labour hours 29,400
Welding department
Budgeted manufacturing overhead $120,000
Actual manufacturing overhead 108,000
Budgeted machine hours 96,000
Actual machine hours 90,000
Budgeted direct labour hours 15,000
Actual direct labour hours 11,700
Total plant
Budgeted manufacturing overhead $180,000
Actual manufacturing overhead 162,000
Budgeted machine hours 120,000
Actual machine hours 117,000
Budgeted direct labour hours 45,000
Actual direct labour hours 41,100
One of Noteperfect's major products, the A Frame, has the following production requirements
Cutting department
Machine hours 2.5
Direct labour hours 4.0
Welding department
Machine hours 4.0
Direct labour hours 1.0
Total plant
Machine hours 6.5
Direct labour hours 5.0
Question 1: Calculate the manufacturing overhead cost of the A Frame using:
(a) a predetermined plantwide rate based on direct labour hours
(b) a predetermined plantwide rate based on machine hours
(c) predetermined departmental rates based on direct labour hours for the cutting department and on machine hours for the welding department.
Which of these three estimates of overhead cost is likely to be the most accurate? Explain.
Question 2: Calculate the manufacturing overhead cost of the A Frame, using an actual costing system and departmental overhead rates based on labour hours for cutting and on machine hours for welding. Explain why cost drivers must be used with actual costing as well as with normal costing.
Question 3: Which estimate of overhead costs is likely to be more accurate-that based on predetermined departmental rates or that based on actual departmental rates?