(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
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 |
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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