Question

Mason Company has two manufacturing departments—Machining and Assembly. The company considers all of its manufacturing overhead costs to be fixed costs. It provided the following estimates at the beginning of the year as well as the following information with respect to Jobs A and B: Estimated Data Machining Assembly Total Manufacturing overhead $ 22,500,000 $ 900,000 $ 23,400,000 Direct labor hours 30,000 750,000 780,000 Machine hours 750,000 25,000 775,000 Job A Machining Assembly Total Direct labor hours 5 10 15 Machine hours 11 2 13 Job B Machining Assembly Total Direct labor hours 4 5 9 Machine hours 12 3 15 Required: 1. If Mason Company uses a plantwide predetermined overhead rate with direct labor-hours as the allocation base, how much manufacturing overhead cost would be applied to Job A? Job B? (Round your answers to the nearest whole dollar amount.) 2. Assume that Mason Company uses departmental predetermined overhead rates. The Machining Department is allocated based on machine-hours and the Assembly Department is allocated based on direct labor-hours. How much manufacturing overhead cost would be applied to Job A? Job B?

Answer 1

(a) Plant wide predetermined overhead rate:

`=(Total\ manufacturing\ overhead)/(Total\ direct\ labor\ hours)`

`=(23,400,000)/(780,000)`

= 30

Manufacturing overhead applied Job A:

= Total direct labor hours × Plant wide predetermined overhead rate

= 15 × 30

= 450

Manufacturing overhead applied Job A:

= Total direct labor hours × Plant wide predetermined overhead rate

= 9 × 30

= 270

(b) Departmental predetermined overhead rates:

`Machining =(Manufacturing\ overhead)/(Machine\ hours)`

`Machining =(22,500,000)/(750,000)`

= 30

`Assembly =(Manufacturing\ overhead)/(Labor\ hours)`

`Assembly =(900,000)/(750,000)`

= 1.2

Manufacturing overhead applied Job A:

= (Machining machine hours × 30) + (Assembly direct labor hours × 1.2)

= (11 × 30) + (10 × 1.2)

= 330 + 12

= 342

Manufacturing overhead applied Job B:

= (Machining machine hours × 30) + (Assembly direct labor hours × 1.2)

= (12 × 30) + (5 × 1.2)

= 360 + 6

= 366