Reference no: EM133085106

Question - Jurgens Tailoring is a costume company located in Bridgetown. Jurgens designs and creates costumes for theatrical presentations. Additionally, Jurgens alters and repairs costumes. Jurgens has three departments: design, sewing and beading. The design department overhead consists of computers and software for computer- assisted design. The sewing department overhead consists of thread, sewing machines and small tools. The beading department has very little overhead, just thread and some glue. Of course, all departments are assigned a share of utilities, rent, and so on. Information on estimated overhead and direct labour hours for the year by department are as follows:

Estimated Overhead Estimated Direct Labour $ Hours

Design Department 55,000 2,000

Sewing Department 42,000 7,000

Beading 3,000 1,000

The Aureole Dance Company has just contracted with Jurgens for 20 new costumes for a performance. Aureole has decided to stick with tried and true patterns, which Jurgens already has in stock, but to splurge on fancier materials and beading. As a result, no Design Department services are needed. Direct materials for the job will cost $6,000. The job will take 160 hours of Sewing Department time at $8.00 per direct labour hour and 400 hours of Beading Department time at $12.50 per direct labour hour.

Required -

(i) Calculate a single overhead rate for Jurgens. What is the total cost of the Aureole job using this rate?

(ii) Calculate departmental overhead rates for each department based on direct labour hours. What is the total cost of the Aureole job using these rates?

(iii) Assuming that Jurgens charges customers cost plus 25 percent, why might it be in Jurgens best interest to use a departmental overhead rate?

(iv) Explain how overhead is assigned to production when a predetermined overhead rate is used.

(v) Explain why multiple overhead rates are often preferred to a plant-wide overhead rate.