ACC_2233_Lesson_Seven_Learning_Activities and Solutions

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Algonquin College *

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2233

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Accounting

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May 19, 2024

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PROBLEM ONE Job-Order Costing; (LO 2) Feline Company uses a normal job-order costing system. Currently, a plantwide overhead rate based on direct labour is used. Lola Katz, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than a plant-wide rate can offer. Some jobs spend most of their time in Department A, while others spend most of their time in Department B. Feline has the following data for its two departments for the coming year: Department A Department B Expected overhead cost $75,000 $33,000 Expected direct labour hours 30,000 24,000 A. Compute the plant-wide overhead rate. B. Compute the departmental overhead rates. (Carry out your answers to three decimal places.) C. Which overhead rate would you recommend, and why? PROBLEM TWO Job-Order Costing; (LO 2) Elf Company produces ornamental trees and uses normal costing. Elf applies overhead based on direct labour hours. The following data are provided: Budgeted Actual Overhead $400,000 $392,000 Machine Hours 20,000 18,000 Direct Labour Hours 16,000 17,840 Direct Materials Cost $521,000 Direct Labour Cost $410,000 Units Produced 10,000 A. Calculate applied overhead. B. Calculate the unit cost.
SOLUTION TO PROBLEM ONE A. $108,000/54,000 = $2 per direct labour hour. B. Dept. A = $75,000/30,000 = $2.50 per direct labour hour Dept. B = $33,000/24,000 = $1.375 per direct labour hour C. The departmental rate would provide more accuracy. Department A appears to be more overhead intensive, so jobs spending more time in Department A ought to receive more overhead.
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