X Company has two production departments, A and B. At the start of the year, the
ID: 2344925 • Letter: X
Question
X Company has two production departments, A and B. At the start of the year, the following budgeted information is available:Department A
Overhead $7,300,000
Direct labor hours 40,000
Machine hours 120,000
Department B
Overhead $2,100,000
Direct labor hours 50,000
Machine hours 130,000
The following information is for two specific jobs, Job 111 and Job 222, that were completed during the year:
Department A Department B
Job 111
Direct labor hours 842 164
Machine hours 1,040 820
Job 222
Direct labor hours 488 567
Machine hours 1,270 730
Using a plantwide allocation system with machine hours as the cost driver, what is the allocation to Job 222 (round overhead rates to the nearest cent and your answer to the nearest dollar)?
Using a departmental allocation system with machine hours as the cost driver in Department A and direct labor hours as the cost driver in Department B, what is the allocation to Job 222 (round overhead rates to the nearest cent and your answer to the nearest dollar)?
Explanation / Answer
Using a plantwide allocation system with machine hours as the cost driver, what is the allocation to Job 222 (round overhead rates to the nearest cent and your answer to the nearest dollar)?
overhead rate = (7,300,000 + 2,100,000)/(120,000 + 130,000) = 9,400,000/250,000 = $37.60 per machine hour
Allocation to job 222: 37.60*(1270 + 730) = $75,200
Using a departmental allocation system with machine hours as the cost driver in Department A and direct labor hours as the cost driver in Department B, what is the allocation to Job 222 (round overhead rates to the nearest cent and your answer to the nearest dollar)?
Dept A rate: 7,300,000/120,000 = $60.83 per machine hour
Dept B rate: 2,100,000/50,000 = $42 per labor hour
Allocated to job 222: 60.83*1270 + 42*567 = $101,068
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