Problem:
(Cost accumulation in two departments) Rio Valde Co. uses a normal cost, job order costing system. In the Mixing Department, overhead is applied using machine hours; in Paving, overhead is applied using direct labor hours. In December 2009, the company estimated the following data for its two departments for 2010:
|
Mixing Department
|
Paving Department
|
|
Direct labor hours
|
12,000
|
28,000
|
|
Machine hours
|
60,000
|
12,000
|
|
Budgeted overhead cost
|
$480,000
|
$700,000
|
a. Compute the predetermined OH rate for each department of Rio Valde.
b. Job #220 was started and completed during March 2010. The job cost sheet shows the following information:
|
Mixing Department
|
Paving Department
|
|
Direct material
|
$22,600
|
$3,400
|
|
Direct labor cost
|
$1,250
|
$4,050
|
|
Direct labor hours
|
24
|
340
|
|
Machine hours
|
290
|
44
|
Compute the overhead applied to Job #220 for each department and in total.
c. The president of Rio Valde suggested that, for simplicity, a single predetermined overhead rate be computed using machine hours. How much overhead would have been applied to Job #220 if that single rate had been used? Would such a rate have indicated the actual overhead cost of each job? Explain.