Reference no: EM132507891

The Gilster Company, a machine tooling firm, has several plants. One plant, located in St Falls Minnesota, uses a job order costing system for its batch production processes. The St. Fall plant has two departments through which most jobs pass. Plantwide overhead, which includes the plant manager's salary, accounting personnel, cafeteria, and human resources, is budgeted at $250,000.

During the past year, actual plantwide overhead was $240,000. Each department's overhead consists primarily of depreciation and other machine-related expenses. Selected budget and actual data from the St. Falls plant for the past year are as follows

                                                                 Department A                       Department B

Budgeted Department overhead               $150,000                           $600,000

(excludes plantwide overhead)

Actual Department Overhead                       160,000                           620,000

Expected Total activity

Direct Labor Hours                                       35,000                          15,000

Machine hours                                          10,000                         40,000

Actual Activity

Direct labor hours                                    51,000                             9,000

machine hours                                      10,500                               42,000

For the coming year, the accountants at St. Falls are in the process of helping the sales force create bids for several jobs. Projected data pertaining only to job no. 110 are as follow

Direct Materials $25,000

Direct Labor cost

Department A(2,200 hr) 45,000

Department B (800 hr) 10,000

Machine hours projected

Department A 200

Department B 1,200

Units Produced 10,000

Question A. Assume the St. Falls plant uses a single plantwide overhead rate to assign all overhead (plantwide and department) costs to jobs. Use expected total direct labor hours to compute the overhead rate. What is the expected cost per unit produced for job no 110.

Question B. Recalculate the projected manufacturing costs for job no. 110 using three separate rates: one rate for plantwide overhead and two separate department overhead rates, all based on machine-hours.

Question C. The sales policy at St. Falls dictates that job bids be calculated by adding 40 percent to total manufacturing costs. What would be the bid for job no. 110 using the overhead rate from part a and the overhead rate from part b. Explain why the bids differ. Which of the overhead allocation methods would you recommend and why.