Question

Pigot Corporation uses job costing and has two production departments, M and A. Budgeted manufacturing costs for the year are as follows:
Dept. M Dept. A
Direct materials$700,000 $100,000
Direct labor 200,000 800,000
Factory overhead 600,000 400,000
The actual material and labor costs charged to Job were as follows:
Total

Direct materials: $25,000
Direct labor:
Department A $ 8,000
Department B $12,000
$20,000
Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.For Department A, the manufacturing overhead allocation rate is:____________?For Department B, the manufacturing overhead allocation rate is:____________?Manufacturing overhead costs allocated to total:______________?

Answer 1

Answer:

Department M

Manufacturing overhead rate = $600,000/200,000 hrs = $3/hr

Department A

Manufacturing overhead rate = $400,000/800,000 hrs = $0.5/hr

Manufacturing overhead cost allocated:

Department M = $3 x 8,000      = $24,000

Department A  = $0.5 x 12,000 = $6,000

Total manufacturing cost allocated = $30,000

Explanation:

This relates to overhead absorption. The manufacturing overhead rate is calculated as budgeted manufacturing overhead divided by budgeted direct labour hour.

Manufacturing overhead allocated = manufacturing overhead rate x actual labour hour for each department for the job.