1. Sally believes that each job should be charged based on the actual manufactur
ID: 2555967 • Letter: 1
Question
1. Sally believes that each job should be charged based on the actual manufacturing overhead incurred by the company. Why would this practice be impractical based on the text and your learning? 2. Robbins Company estimates that its manufacturing overhead for next year will be $900,000. Robbins' direct labor cost for next year is estimated to be 30,000 direct labor hours at $20 per hour. Robbins also estimates that its factory will require 60,000 machine hours of usage for the year. Compute three alternative Predetermined Overhead Rates that Robbins might use for the year, using each of the following as the cost driver: a. Based on DL Cost b. Based on DL Hours c. Based on Machine HoursExplanation / Answer
Answer 1 Practice of each job should be charged based on actual manufacturing overhead incurred by the company is impractical due to following reason, We have to wait untill the end of the year to know the actual numbers but that does not help us to determine if our jobs are profitable when they are completed.We can't wait that long if we are making profits on our job.Hence to resolve this issue, most of the businesses estimates overhead and activity at the beginning of the year.They use those estimates to calculate a rate that we can apply to our jobs. Answer 2-a Predetermined overhead rate based on Direct labour cost = Estimated manufacturing overhead for the next year / Estimated direct labour cost Predetermined overhead rate based on Direct labour cost = $900000 / (30000 DL hours * $20 per hour) = 150% of direct labour cost Answer 2-b Predetermined overhead rate based on Direct labour hours = Estimated manufacturing overhead for the next year / Estimated direct labour hours Predetermined overhead rate based on Direct labour hours = $900000/30000 direct labour hours = $30 per direct labour hour Answer 2-c Predetermined overhead rate based on machinehours = Estimated manufacturing overhead for the next year / Estimated machine hours Predetermined overhead rate based on machinehours = $900000 / 60000 machine hours = $15 per machine hour
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