Calculate the predetermined overhead rate using machine-hour

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Reference no: EM132866171

Problem - Neptune Inc. manufactures steal structures to civil engineering companies. Neptune's factory has three production departments and the table below shows the estimated manufacturing overhead, direct labor-hours and machine-hours for each department.

 

Cutting

Drilling

Assembling

Manufacturing overhead (estimated)

R$504.000,00

R$2.304.000,00

R$2.736.000,00

Direct labor-hours (estimated)

60.000h

96.000h

144.000h

Machine-hours (estimated)

960.000h

480.000h

360.000h

The order request no. 101 has spent the following direct labor hours and machine hours:

 

Cutting

Drilling

Assembling

Direct labor-hours

2.000h

2.500h

3.000h

Machine-hours

20.000h

3.000h

2.000h

Required -

(a) Using the concepts of absorption costing by the job-order costing method (i.e., not considering departments when assigning costs), calculate the predetermined overhead rate using the direct labor-hour as the allocation base. Next, assign the manufacturing overhead to the order request no. 101.

(b) Using the concepts from process costing (i.e., considering departments when assigning costs), calculate the predetermined overhead rate using machine-hours as the allocation base for the cutting department and direct labor-hours as the allocation base for the drilling and assembling departments. Next, assign the manufacturing overhead to the order request no. 101.

(c) Compare the results obtained from items (a) and (b) and explain why Neptune Inc. should choose either the job-order costing or the process costing.

Reference no: EM132866171

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