Walters Products manufactures its products in two separate departments: Machining and Assembly. Total manufacturing overhead costs for the year are budgeted at $1,100,000. Of this?amount, the Machining Department incurs $680,000 ?(primarily for machine operation and? depreciation) while the Assembly Department incurs $420,000. The company estimates that it will incur 10,000 machine hours? (all in the Machining? Department) and 22,000 direct labor hours ?(8,000 in the Machining Department and 14,000 in the Assembly? Department) during the year.
Walters Products currently uses a plant wide overhead rate based on direct labor hours to allocate overhead.? However, the company is considering refining its overhead allocation system by using departmental overhead rates. The Machining Department would allocate its overhead using machine hours ?(MH), but the Assembly Department would allocate its overhead using direct labor? (DL) hours. The following chart shows the machine hours? (MH) and direct labor? (DL) hours incurred by Jobs 500 and 501 in each production? department:
Requirement 1. Compute the ?company’s current plantwide overhead rate. ?(Round your answer to the nearest? dollar.)
Requirement 2. Compute refined departmental overhead rates.
Requirement 3. Which job? (Job 500 or Job? 501) uses more of the? company's resources? Explain.
Requirement 4. Compute the total amount of overhead allocated to each job if the company uses its current plantwide overhead rate.
Requirement 5. Compute the total amount of overhead allocated to each job if the company uses departmental overhead rates.
Requirement 6. Compute the total manufacturing cost and sales price of each job using the? company's current plantwide overhead rate. ?(Round amounts to the nearest dollar. Enter the percentage as a whole? number.)
Requirement 7. Based on the current ?(plantwide) allocation? system, how much profit did the company think it earned on each? job? Calculate the gross profit using the current costing system. Based on the departmental overhead rates and the sales price determined in Requirement? 7, how much profit did the company really earn on each? job? Calculate the gross profit using the departmental rate costing system. ?(Use parentheses or a minus sign to show? losses.)