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Question 7: Computing Costs of an Object

Donkey Aussie Limited has two departments Iron and Jelly. The company uses a job-order costing system. The company manufactures luxury bicycles for sport.

The company currently computes a predetermined overhead rate for the overall plantwide based on machine-hours.

The company is considering a change to compute predetermined overhead per each department. The Iron Department would base its rate on machine-hours and the Jelly Department bases its rate on direct labour-hours. At the beginning of the year, the company made the following estimates:

	Department
	Iron	Jelly
Direct labour-hours	14,000	420,000
Machine-hours	640,000	26,000
Total fixed manufacturing overhead cost	$11,390,000	$11,500,000
Variable manufacturing overhead per machine-hour	$14.00	$14.00
Variable manufacturing overhead per direct labour-hour	$26.75	$26.75

During the company complete Job #7707, which was started and completed during the year. The job sheet for Job #7707 is presented as follows:

	Department
	Iron	Jelly
Direct labour-hours	16	299
Machine-hours	410	21
Materials requisitioned	$312,800	$216,370
Direct labour costs	$85,145	$106,160

Required:

1. Compute the cost of Job #7707 if pre-determined overhead is calculated based on a plantwide basis.
2. Compute the cost of Job #7707 if pre-determined overhead is calculated based on a department basis.

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