Reference no: EM132568922

Gugusan Bintang Sdn Bhd (GBSB) produces customized products and assigns manufacturing costs using normal costing system. From its inception, GBSB has been using plantwide overhead rate based on direct labour hours (DLH) to assign manufacturing overhead costs to customer orders. Recently, as the amount of its indirect costs getting larger, the accounting department of GBSB was considering two options - (1) to change the allocation base to machine hours; (2) to use departmental rate. If the latter is chosen, machining and assembly departments would use machine hours and direct labour hours respectively. The following details are collected from GBSB's 2019 production budget:

Department Assembly

Manufacturing overhead RM3,400,000

Direct labour costs RM1,800,000

Direct labour hours 120,000

Machine hours 200,000

Machining Department

Manufacturing overhead RM1,820,000

Direct labour costs RM1,500,000

Direct labour hours 240,000

Machine hours 61,000

At the end of 2019, the actual manufacturing overhead costs were RM3,510,000 in Machining Department and RM2,125,000 in Assembly Department. Machine hours used by Machining Department is 215,000 whereas Assembly Department used 63,500 machine hours.

REQUIRED:

Question (a) Calculate the plantwide pre-determined overhead rate using the following bases:

(i) Direct labour hours

(ii) Machine hours

Question (b) Discuss which of the two bases calculated at (a) would be a better basis for plantwide overhead rate.

Question (c) Determine the departmental overhead rate for each department.

Question (d) Explain why departmental overhead rate would be a better option.

Question (e) Explain TWO (2) ways how overapplied or underapplied overhead being disposed.