Custom Auto Parts_overhead allocation rates

$11.00

Description

Custom Auto Parts
manufactures parts to order for antique cars. Custom Auto Parts makes
everything from fenders to engine blocks. Each customer order is treated as a
job. The company currently has two jobs, No. 9823 and No. 9824 that are
complete, although overhead has not yet been applied. The company wants to know
what each job’s cost would be under alternative overhead allocation rates based
on: (1) direct labor cost, (2) direct labor hours, and (3) machine hours.
Estimates for this year are as follows:

Direct labor cost $300,000
Direct
labor hours 25,000
Machine
hours 8,000
Overhead
costs $200,000
Depreciation
on machinery accounts for 75 percent of the overhead costs. The job-cost sheets
show:

Job
9823 Job 9824
Direct material $1,000
$2,000
Direct
labor cost $1,400
$1,400
Direct
labor hours 150 130
Machine
hours 130 270

Determine the overhead allocation rate under the
three suggested allocation bases. Round to the two decimal places.

Calculate
the cost of Job 9823 and Job 9824 using each of the three bases. Round to two
decimal places.

Discuss
which allocation base appears preferable.

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