(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.