John Company of Akron, Ohio has two manufacturingdepartments—Machining and Assembly. The company considers all ofits manufacturing overhead costs to be fixed costs. It provided thefollowing estimates at the beginning of the year as well as thefollowing information with respect to Jobs A and B:
Estimated Data | Machining | Assembly | Total |
Manufacturing overhead | $500,000 | $100,000 | $600,000 |
Direct labor-hours | 10,000 | 50,000 | 60,000 |
Machine-hours | 50,000 | 5,000 | 55,000 |
Job A | Machining | Assembly | Total |
Direct labor-hours | 5 | 10 | 15 |
Machine-hours | 11 | 2 | 13 |
Job B | Machining | Assembly | Total |
Direct labor-hours | 4 | 5 | 9 |
Machine-hours | 12 | 3 | 15 |
Required
- If John Company uses a plantwide predetermined overhead ratewith direct labor-hours as the allocation base, how muchmanufacturing overhead cost would be applied to Job A? Job B? Showyour work.
- Assume that John Company uses departmental predeterminedoverhead rates. The Machining Department is allocated based onmachine-hours and the Assembly Department is allocated based ondirect labor-hour. How much manufacturing overhead cost would beapplied to Job A? Job B? Show your work.
- If John Company multiplies its job costs by a markup percentageto establish selling prices, how might plantwide allocationadversely affect the company’s pricing decision?
