Reference no: EM132743731

Question: Cekap Sdn Bhd has two departments and currently is using a plantwide overhead rate based on machine hours in allocating overhead costs to each department. The plant manager has been briefed that the departmental overhead rates offer substantially better cost assignments than a plantwide rate does. Cekap has the following data for its two departments for the coming period:

Department A

Overhead costs (estimated) RM37,500

Machine hours (estimated) 5,000

Department B

Overhead costs (estimated) RM16,500

Machine hours (estimated) 4,000

1) Which costing system is used by Cekap Sdn Bhd (normal vs actual)? Explain.

2) Compute a predetermined overhead rate for the plant as a whole based on machine hours.

3) Compute predetermined overhead rates for each department using machine hours (Note: Format your calculations out to three decimal places).

4) Job C11 used 10 machine hours from Department A and 25 machine hours from Department B. Job C12 used 25 machine hours from Department A and 10 machine hours from Department B.

a) Compute the overhead cost assigned to each job using the plantwide rate computed in (2).

b) Repeat the computation using the departmental rates found in (3).

c) Which of the two approaches gives the fairer cost assignment? Why?

5) What If Analysis: Repeat Requirement (4), assuming the expected overhead cost for Department B is RM30,000 (not RM16,500). For this company, would you recommend departmental rates over a plantwide rate? Briefly explain.