Question

QUESTION 1C (TOPIC 3)

North Network Sdn Bhd (NNSB) makes custom made furniture from quality woods. The company uses a job-order costing system and predetermined overhead rates to apply manufacturing overhead cost to jobs. Currently, NNSB uses a plantwide overhead rate based on direct labor costs in estimating the company manufacturing overhead. The following estimated data have been made by NNSB at the beginning of the year 2018:

 Department Costs Designing Machining Furnishing Direct labor hours 30,000 60,000 40,000 Machine hours 20,000 40,000 30,000 Direct labor costs RM150,000 RM100,000 RM200,000 Direct materials costs RM190,000 RM400,000 RM250,000 Manufacturing overhead costs RM270,000 RM400,000 RM50,000

Job 118 was started on 1 January 2018 and completed on 28 February 2018. NNSB’s cost records shown the following information on the Job 118:

 Department Costs Designing Machining Furnishing Direct labor hours 2,500 1,700 1,200 Machine hours 1,500 3,200 2,000 Direct labor costs RM12,000 RM18,500 RM15,000 Direct materials costs RM15,000 RM26,000 RM12,800 Manufacturing overhead costs RM25,000 RM40,000 RM30,000

However, recently, you as the plant manager have heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. In implementing this new overhead rate base, the predetermined overhead rate in the Designing Department will be based on direct labor hours; Machining Department will be based on machine hours; and the rate in the Furnishing Department will be based on direct labor costs.

REQUIRED:

(a)     If NNSB uses a plantwide overhead rate:

(i)      Calculate the predetermined overhead rate for the year 2018.

(ii)     Determine the total of manufacturing overhead cost applied to Job 118.

(b)     If NNSB uses departmental overhead rate:

(i)      Calculate the predetermined overhead rate for each department for the year 2018.

(ii)     Determine the total of manufacturing overhead cost applied to Job 118.

(c)      Between the plantwide rate in part (a) (ii) and the departmental rate in part (b) (ii) above, which manufacturing overhead rate would you recommend to be applied for Job 118? Justify your answer.