Job cost, markup, and single rate versus departmental rates Modern Metalworks Company has two departments, milling and assembly. The company uses a job costing system with a plantwide cost driver rate that is computed by dividing plantwide overhead costs by total plantwide practical capacity direct labor hours. The following cost and practical capacity estimates are for October:
|
|
MILLING |
ASSEMBLY |
|
Overhead costs |
$120,000 |
$160,000 |
|
Direct labor hours |
8,000 |
12,000 |
|
Machine hours |
12,000 |
6,000 |
The following information pertains to job 714, which was started and completed during October:
|
|
MILLING |
ASSEMBLY |
|
Direct labor hours |
10 |
40 |
|
Machine hours |
18 |
8 |
|
Direct materials costs |
$800 |
$50 |
|
Direct labor costs |
$100 |
$600 |
Required
(a) Determine the cost of job 714.
(b) Suppose that instead of using the plantwide cost driver rate, the company uses machine hours as the cost driver for applying overhead costs in the milling department, and uses direct labor hours as the cost driver in the assembly department. Compute these departmental cost driver rates and determine the cost of job 714 using these rates.
(c) Using the costs you computed in parts a and b, determine the bid price that Modern Metalworks will quote under each cost system if it uses a 25% markup on total manufacturing cost.
(d) Provide reasons why Modern Metalworks might prefer the method in part a or the one in part b.