Exercise 4 (Departmental Overhead Rates) Bobcat Company has two departments, milling and assembly. The company...
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Exercise 4 (Departmental Overhead Rates) Bobcat Company has two departments, milling and assembly. The company uses a job-order cost system and computes a predetermined overhead rate in each department. The milling department bases its rate on machine-hours, and the assembly department bases its rate on direct labor cost. At the beginning of the year, the company made the following estimates: Department Direct labor-hours Machine-hours Manufacturing overhead cost Direct labor cost Milling Assembly 8,000 75,000 3,000 P510,000 P800,000 72,000 640,000 60,000 Required Compute the predetermined overhead rate to be used in each department. Assume that the overhead rates you computed in (1) above are in effect. The job cost sheet for job 123, which was stated and completed during the year, showed the following: 1. 2. Department Direct labor-hours Machine-hours Materials requisitioned Direct labor cost Milling Assembly 20 4 P800 P370 160 90 45 Compute the total overhead cost applied to job 123. 3. Would you expect substantially different amounts of overhead cost to be charged to some jobs if the company used a plantwide overhead rate based on direct labor cost instead of using departmental rates? Explain. No computations are necessary
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