Sector's Machine Works Manufactures Custom Equipment

question 184

Essay

Sector's Machine Works manufactures custom equipment. Sector's Machine Works currently uses a plantwide overhead rate, based on direct labour hours, to allocate its $2,000,000 of manufacturing overhead to individual jobs. However, Franco Sector, owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $1,400,000 of MOH while the Assembly Department incurs $600,000 of MOH. Franco has identified machine hours (MH) as the primary MOH cost driver in the Machining Department and direct labour (DL) hours as the primary cost driver in the Assembly Department. Sector completed job numbers 550 and 555 on May 15. Both jobs incurred a total of 7 DL hours throughout the entire production process. Job 550 incurred 3 MH in the Machining Department and 6 DL hours in the Assembly Department (the other DL hour occurred in the Machining Department). Job 555 incurred 4 MH in the Machining Department and 5 DL hours in the Assembly Department (the other two DL hours occurred in the Machining Department).
Requirements
1. Compute departmental overhead rates, assuming Sector expects to incur 25,000 MH in the Machining Department and 30,000 DL hours in the Finishing Department during the year.
2. Using the departmental rates how much manufacturing overhead would be allocated to Job 550 and to Job 555.