LO.1 & LO.3 (Plant vs. departmental OH rates) Red River Farm Machine makes a wide variety' of products, all of which must be processed in the Cutting and Assembly departments. For the year 2013, Red River budgeted total overhead of $993,000, of which $385,500 will be incurred in Cutting and the remainder will be incurred in Assembly. Budgeted direct labor and machine hours are as follows: Cutting Assembly Budgeted direct labor hours 27,000 3,000 Budgeted machine hours 2,100 65,800 Two products made by Red River are the RW22SKI and the SD45ROW. The following cost and production time information on these items has been gathered: RW22SKI SD45ROW Direct material $34.85 $19.57 Direct labor rate in Cutting $20.00 $20.00 Direct labor rate in Assembly $8.00 $8.00 Direct labor hours in Cutting 6.00 4.80 Direct labor hours in Assembly 0.03 0.05 Machine hours in Cutting 0.06 0.15 Machine hours in Assembly 5.90 9.30 a. What is the plantwide predetermined OH rate based on (1) direct labor hours and (2) machine hours for the upcoming year? Round all computations to the nearest cent. b. What are the departmental predetermined OH rates in Cutting and Assembly using the most appropriate base in cach department? Round all computations to the nearest cent. c. What are the costs of products RW22SKI and SD45ROW using (1) a plantwide rate based on direct labor hours, (2) a plantwide rate based on machine hours, and (3) departmental rates calculated in (b)?
LO.1 & LO.3 (Plant vs. departmental OH rates) Red River Farm Machine makes a wide variety' of products, all of which must be processed in the Cutting and Assembly departments. For the year 2013, Red River budgeted total overhead of $993,000, of which $385,500 will be incurred in Cutting and the remainder will be incurred in Assembly. Budgeted direct labor and machine hours are as follows:
| Cutting | Assembly | |
| Budgeted direct labor hours | 27,000 | 3,000 |
| Budgeted machine hours | 2,100 | 65,800 |
Two products made by Red River are the RW22SKI and the SD45ROW. The following cost and production time information on these items has been gathered:
| RW22SKI | SD45ROW | |
| Direct material | $34.85 |
$19.57 |
| Direct labor rate in Cutting | $20.00 |
$20.00 |
| Direct labor rate in Assembly | $8.00 | $8.00 |
| Direct labor hours in Cutting |
6.00 |
4.80 |
| Direct labor hours in Assembly | 0.03 | 0.05 |
| Machine hours in Cutting | 0.06 | 0.15 |
| Machine hours in Assembly | 5.90 | 9.30 |
a. What is the plantwide predetermined OH rate based on (1) direct labor hours and (2) machine hours for the upcoming year? Round all computations to the nearest cent.
b. What are the departmental predetermined OH rates in Cutting and Assembly using the most appropriate base in cach department? Round all computations to the nearest cent.
c. What are the costs of products RW22SKI and SD45ROW using (1) a plantwide rate based on direct labor hours, (2) a plantwide rate based on machine hours, and (3) departmental rates calculated in (b)?
d. A competitor manufactures a product that is extremely similar to RW22SKI and sells each unit for $310. Discuss how Red River's management might be induenced by the impact of the different product costs calculated in (c).
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