Crows Nest Manufacturing Uses Departmental Cost Driver Rates to Apply

question 91

Essay

Crows Nest Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products.Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labour-hours in the Assembly Department.At the beginning of 2013,the following estimates were provided for the coming year:
$$\begin{array} { l l l } & \text { Machining } & \text { Assembly } \\\text { Direct labour-hours } & 10000 \mathrm { dlh } & 90000 \mathrm { dlh } \\\text { Machine-hours } & 100000 \mathrm { mh } & 5000 \mathrm { mh } \\\text { Direct labour cost } & \$ 80000& \$ 720000 \\\text { Manufacturing overhead costs } & \$ 250000 & \$ 360000\end{array}$$
The accounting records of the company show the following data for Job #846:
$$\begin{array} { l l l } & \text { Machining } & \text { Assembly } \\\text { Direct labour-hours } & 100 \mathrm { dlh } &170 \mathrm { dlh } & \\\text { Machine-hours } & 270 \mathrm { mh } &30 \mathrm { mh } & \\\text { Direct material cost } & \$ 3700 & \$ 2600 \\\text { Direct labour cost } & \$ 800 & \$ 1900\end{array}$$
Required:
a.Compute the manufacturing overhead allocation rate for each department.
b.Compute the total cost of Job #846.
c.Provide possible reasons why Crows Nest Manufacturing uses two different cost-allocation rates.
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Definitions:

Unit Product Cost

The total cost assigned to a single unit of product, encompassing direct materials, direct labor, and manufacturing overhead.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.

Production Cost

The total expense incurred in manufacturing goods, including materials, labor, and overhead costs.

Variable Overhead

The costs that fluctuate with the level of production or business activity, such as utilities or materials.