How did the direct labor & direct materials amounts change for the milling and assembly departments? Did I miss that? I was following along with how to calculate total manufacturing overhead for each department, but I don’t know how the direct materials and direct labor amounts were calculated. cost) to establish selling prices for all of its jobs. At the beginning of the year, the com- noatgpany made the following estimates:DepartmentMillingAssemblyMachine-hours.60,0003,000Direct labor-hours8,00080,000Total fixed manufacturing overhead cost$390,000$500,000Variable manufacturing overhead per machine-hour$2.00Variable manufacturing overhead per direct labor-hour$3.75During the current month the company started and completed Job 407. It wants to useits predetermined departmental overhead rates and the information pertaining to Job 407that is shown below to establish a selling price for this job:DepartmentJob 407MillingAssemblyMachine-hours90Direct labor-hours20Direct materials$800$370Direct labor cost$70$280Exhibit 2-5 explains how Dickson would compute a selling price for Job 407 usinga five-step process, the first of which is to calculate the estimated total manufacturingoverhead cost in each department using the equationY = a + bXwhere:Y = The estimated total manufacturing overhead costa = The estimated total fixed manufacturing overhead costb = The estimated variable manufacturing overhead cost per unit of theallocation baseX = The estimated total amount of the allocation baseAs shown in step 1 in Exhibit 2–5, this equation provides the Milling Department's esti-mated total manufacturing overhead cost of $510,000 and the Assembly Department'sestimated total overhead cost of $800,000.The second step is to calculate the predetermined overhead rate for each departmentusing the following formula:Estimated total manufacturing overhead costPredetermined overhead rate =Estimated total amount of the allocation basePer step 2 in Exhibit 2-5, this formula results in predetermined overhead rates in theMilling and Assembly Departments of $8.50 per machine-hour and $10.00 per directlabor-hour, respectively.The third step is to use the general equation shown below to calculate the amount ofoverhead applied from each department to Job 407.Overhead applied to Predetermined Actual amount of the allocationoverhead rateJob 407base used by Job 407 76Chapter 2EXHIBIT 2-5Dickson Company: An Example Using Multiple Predetermined Overhead RatesStep 1: Calculate the estimated total manufacturing overhead cost for each department.Milling Department Overhead Cost (Y):Assembly Department Overhead Cost (Y):= $390,000 + ($2.00 per MH x 60,000 MHs)= $390,000 + $120,000= $510,000= $500,000 + ($3.75 per DLH x 80,000 DLHS)= $500,000 + $300,000$800,000Step 2: Calculate the predetermined overhead rate in each department.Milling Department Overhead Rate:Assembly Department Overhead Rate:$510,000$800,000%3D60,000 machine-hours80,000 direct labor-hours= $8.50 per machine-hour= $10.00 per direct labor-hourStep 3: Calculate the amount of overhead applied from both departments to Job 407.Milling Department: Overhead Applied to Job 407= $8.50 per MH x 90 MHsAssembly Department: Overhead Applied to Job 407= $10.00 per DLH x 20 DLHS= $200= $765Step 4: Calculate the total job cost for Job 407.MillingAssemblyTotalDirect materials$800$370$1,170Direct labor..$70$280350Manufacturing overhead applied ..$765$200965Total cost of Job 407$2,485Step 5: Calculate the selling price for Job 407.Total cost of Job 407$2,485.00Markup ($2,485 x 75%).1,863.75Selling price of Job 407$4,348.75As depicted in the middle of Exhibit 2-5, $765 of manufacturing overhead would beapplied from the Milling Department to Job 407, whereas $200 would be applied fromthe Assembly Department to this same job.Finally, Exhibit 2-5 also summarizes steps 4 and 5, which calculate the total job costfor Job 407 ($2,485) and the selling price of Job 407 ($4,348.75) using the markup per-centage of 75%.It is important to emphasize that using a departmental approach to overhead applica-tion results in a different selling price for Job 407 than would have been derived using aplantwide overhead rate based on either direct labor-hours or machine-hours. The appealof using predetermined departmental overhead rates is that they presumably provide amore accurate accounting of the costs caused by jobs, which in turn, should enhancemanagement planning and decision making.HELPFUL HINTWhile using multiple predetermined overhead rates may seem more complex than the plant-wide approach, the three-step process for applying overhead costs to jobs is the same for bothmethods. The first step is to use the equation Y = a + bX to calculate the total overhead costin the numerator of the predetermined rate. The second step is to calculate the predeterminedoverhead rate by dividing the numerator by the denominator. The third step is to apply overhead cost to jobs by multiplying the predetermined overhead rate by the actual amount of theallocation base used by the job.

Question

How did the direct labor & direct materials amounts change for the milling and assembly departments? Did I miss that? I was following along with how to calculate total manufacturing overhead for each department, but I don’t know how the direct materials and direct labor amounts were calculated. ￼￼ cost) to establish selling prices for all of its jobs. At the beginning of the year, the com- noatgpany made the following estimates:DepartmentMillingAssemblyMachine-hours.60,0003,000Direct labor-hours8,00080,000Total fixed manufacturing overhead cost$390,000$500,000Variable manufacturing overhead per machine-hour$2.00Variable manufacturing overhead per direct labor-hour$3.75During the current month the company started and completed Job 407. It wants to useits predetermined departmental overhead rates and the information pertaining to Job 407that is shown below to establish a selling price for this job:DepartmentJob 407MillingAssemblyMachine-hours90Direct labor-hours20Direct materials$800$370Direct labor cost$70$280Exhibit 2-5 explains how Dickson would compute a selling price for Job 407 usinga five-step process, the first of which is to calculate the estimated total manufacturingoverhead cost in each department using the equationY = a + bXwhere:Y = The estimated total manufacturing overhead costa = The estimated total fixed manufacturing overhead costb = The estimated variable manufacturing overhead cost per unit of theallocation baseX = The estimated total amount of the allocation baseAs shown in step 1 in Exhibit 2–5, this equation provides the Milling Department's esti-mated total manufacturing overhead cost of $510,000 and the Assembly Department'sestimated total overhead cost of $800,000.The second step is to calculate the predetermined overhead rate for each departmentusing the following formula:Estimated total manufacturing overhead costPredetermined overhead rate =Estimated total amount of the allocation basePer step 2 in Exhibit 2-5, this formula results in predetermined overhead rates in theMilling and Assembly Departments of $8.50 per machine-hour and $10.00 per directlabor-hour, respectively.The third step is to use the general equation shown below to calculate the amount ofoverhead applied from each department to Job 407.Overhead applied to Predetermined Actual amount of the allocationoverhead rateJob 407base used by Job 407 76Chapter 2EXHIBIT 2-5Dickson Company: An Example Using Multiple Predetermined Overhead RatesStep 1: Calculate the estimated total manufacturing overhead cost for each department.Milling Department Overhead Cost (Y):Assembly Department Overhead Cost (Y):= $390,000 + ($2.00 per MH x 60,000 MHs)= $390,000 + $120,000= $510,000= $500,000 + ($3.75 per DLH x 80,000 DLHS)= $500,000 + $300,000$800,000Step 2: Calculate the predetermined overhead rate in each department.Milling Department Overhead Rate:Assembly Department Overhead Rate:$510,000$800,000%3D60,000 machine-hours80,000 direct labor-hours= $8.50 per machine-hour= $10.00 per direct labor-hourStep 3: Calculate the amount of overhead applied from both departments to Job 407.Milling Department: Overhead Applied to Job 407= $8.50 per MH x 90 MHsAssembly Department: Overhead Applied to Job 407= $10.00 per DLH x 20 DLHS= $200= $765Step 4: Calculate the total job cost for Job 407.MillingAssemblyTotalDirect materials$800$370$1,170Direct labor..$70$280350Manufacturing overhead applied ..$765$200965Total cost of Job 407$2,485Step 5: Calculate the selling price for Job 407.Total cost of Job 407$2,485.00Markup ($2,485 x 75%).1,863.75Selling price of Job 407$4,348.75As depicted in the middle of Exhibit 2-5, $765 of manufacturing overhead would beapplied from the Milling Department to Job 407, whereas $200 would be applied fromthe Assembly Department to this same job.Finally, Exhibit 2-5 also summarizes steps 4 and 5, which calculate the total job costfor Job 407 ($2,485) and the selling price of Job 407 ($4,348.75) using the markup per-centage of 75%.It is important to emphasize that using a departmental approach to overhead applica-tion results in a different selling price for Job 407 than would have been derived using aplantwide overhead rate based on either direct labor-hours or machine-hours. The appealof using predetermined departmental overhead rates is that they presumably provide amore accurate accounting of the costs caused by jobs, which in turn, should enhancemanagement planning and decision making.HELPFUL HINTWhile using multiple predetermined overhead rates may seem more complex than the plant-wide approach, the three-step process for applying overhead costs to jobs is the same for bothmethods. The first step is to use the equation Y = a + bX to calculate the total overhead costin the numerator of the predetermined rate. The second step is to calculate the predeterminedoverhead rate by dividing the numerator by the denominator. The third step is to apply overhead cost to jobs by multiplying the predetermined overhead rate by the actual amount of theallocation base used by the job.

Accepted Answer

Explanation related to Direct Material and Direct Labor is given below,