Reference no: EM132520720

Forestry Products Company uses a job-order costing system at its Woodton, New Brunswick, manufacturing plant. The plant has a cutting and a finishing department. The company uses departmental overhead rates to apply overhead to products. Overhead is applied in the cutting department using machine hours and overhead is applied in the finishing department using direct labour hours.

The 2019 budget for the plant was as follows:

                                                                                Cutting Department                              Finishing Department

Manufacturing overhead costs                             $ 10,455,000                                  $ 5,800,000

Direct manufacturing labour costs                        $ 940,000                                        $ 3,800,000

Direct manufacturing labour hours                           36,000                                             160,000

Machine hours                                                     205,000                                           32,000

During the month of September 2019, the job cost sheet for Job 777 showed the following:

                                                                     Cutting Department                                          Finishing Department

Direct materials used                               $ 15,500                                                       $ 5,000

Direct manufacturing labour costs                  $ 400                                                     $ 1,100

Direct manufacturing labour hours                       50                                                          50

Machine hours                                                   140                                                     90

Actual results at the end of 2019 were as follows:

                                                            Cutting Department                                         Finishing Department

Manufacturing overhead costs              $ 10,600,000                                       $ 5,810,000

Direct manufacturing labour costs               $ 833,000                                     $ 4,073,000

Direct manufacturing labour hours                   35,000                                          155,000

Machine hours                                            211,000                                              31,000

REQUIRED:

Question a. Determine the manufacturing overhead rate in the Cutting Department and the manufacturing overhead rate in the Finishing Department.

Question b. Determine the amount that would have been billed to Job 777 assuming the company marks its full manufacturing costs up by 40 percent to arrive at the amount to be billed to customers.

Question c. Determine the total underapplied or overapplied overhead in the Finishing department for the year.

Question d. Why might Forest Products Company use departmental overhead rates instead of one plant-wide overhead rate?