Questions: Adames Corporation has two manufacturing departments-Cutting and Forming. The company used the following information at the beginning of the year to calculate predetermined overhead rates: - Estimated total direct labor-hours (DLHs): Cutting 6,000, Forming 23,000 - Estimated total machine-hours (MHs): Cutting 13,500, Forming 2,800 - Estimated total manufacturing overhead cost (fixed and variable): Cutting 732,000, Forming 247,000 During the most recent month, Adames started and completed one job. There were no beginning inventories. Information concerning the completed job is as follows: - Direct materials: Cutting 82,600, Forming 12,300 - Direct labor cost: Cutting 11,600, Forming 31,000 - Actual machine-hours: Cutting 1,700, Forming 140 - Actual direct labor-hours: Cutting 480, Forming 1,500 Assume that the company uses separate departmental predetermined overhead rates with the Cutting Dept using machine-hours as the allocation base and the Forming Dept using direct labor-hours. 1. Calculate the predetermined overhead rates for the Cutting and Forming departments separately (round to the nearest cent). 2. Using the departmental rates, calculate the total manufacturing overhead that would be applied to the job. 3. Calculate the cost per unit for the job if the job included 1,250 units (round to the nearest cent). 4. If the company had instead used one plantwide overhead rate, would you expect the job cost to be more or less accurate than what you calculated above?

Adames Corporation has two manufacturing departments-Cutting and Forming. The company used the following information at the beginning of the year to calculate predetermined overhead rates: - Estimated total direct labor-hours (DLHs): Cutting 6,000, Forming 23,000 - Estimated total machine-hours (MHs): Cutting 13,500, Forming 2,800 - Estimated total manufacturing overhead cost (fixed and variable): Cutting 732,000, Forming 247,000 During the most recent month, Adames started and completed one job. There were no beginning inventories. Information concerning the completed job is as follows: - Direct materials: Cutting 82,600, Forming 12,300 - Direct labor cost: Cutting 11,600, Forming 31,000 - Actual machine-hours: Cutting 1,700, Forming 140 - Actual direct labor-hours: Cutting 480, Forming 1,500 Assume that the company uses separate departmental predetermined overhead rates with the Cutting Dept using machine-hours as the allocation base and the Forming Dept using direct labor-hours. 1. Calculate the predetermined overhead rates for the Cutting and Forming departments separately (round to the nearest cent). 2. Using the departmental rates, calculate the total manufacturing overhead that would be applied to the job. 3. Calculate the cost per unit for the job if the job included 1,250 units (round to the nearest cent). 4. If the company had instead used one plantwide overhead rate, would you expect the job cost to be more or less accurate than what you calculated above?
Transcript text: Adames Corporation has two manufacturing departments-Cutting and Forming. The company used the fs at the beginning of the year to calculate predetermined overhead ratels): Estimated total direct labor-hours (DLHs) & 6,000 & 23,000 \\ Estimated total machine-hours (MHs) & 13,500 & 2,800 \\ Estimated total manufacturing overhead cost (fixed and variable) & \$ 732,000 & \$ 247,000 \\ During the most recent month, Adames started and completed one job. There were no beginning inver concerning the completed job is as follows: Direct materials & \$ 82,600 & \$ 12,300 \\ Direct labor cost & \$ 11,600 & \$ 31,000 \\ Actual machine-hours & 1,700 & 140 \\ Actual direct labor-hours & 480 & 1,500 \\ Assume that the company uses separate departmental predetermined overhead rates with the Cut machine-hours as the allocation base and the Forming Dept using direct labor-hours. 1. Calculate the predetermined overhead rates for the Cutting and Forming departments separate nearest cent). 2. Using the departmental rates, calculate the total manufacturing overhead that would be appli 3. Calculate the cost per unit for the job if the job included 1,250 units (round to the nearest cer 4. If the company had instead used one plantwide overhead rate, would you expect the job cos accurate than what you calculated above?
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Solution

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Solution Steps

  1. Calculate the predetermined overhead rates for the Cutting and Forming departments:

    • For the Cutting department, use machine-hours (MHs) as the allocation base.
    • For the Forming department, use direct labor-hours (DLHs) as the allocation base.

  2. Calculate the total manufacturing overhead that would be applied to the job:

    • Use the predetermined overhead rates calculated in step 1 and the actual machine-hours and direct labor-hours for the job.

  3. Calculate the cost per unit for the job:

    • Sum the direct materials, direct labor, and applied overhead costs.
    • Divide the total cost by the number of units produced.
Step 1: Calculate Predetermined Overhead Rates

The predetermined overhead rate for the Cutting department is calculated using machine-hours (MHs) as the allocation base: \[ \text{Predetermined Overhead Rate (Cutting)} = \frac{\text{Estimated Total Manufacturing Overhead (Cutting)}}{\text{Estimated Total Machine-Hours (Cutting)}} = \frac{732000}{13500} = 54.22 \, \text{per MH} \]

The predetermined overhead rate for the Forming department is calculated using direct labor-hours (DLHs) as the allocation base: \[ \text{Predetermined Overhead Rate (Forming)} = \frac{\text{Estimated Total Manufacturing Overhead (Forming)}}{\text{Estimated Total Direct Labor-Hours (Forming)}} = \frac{247000}{23000} = 10.74 \, \text{per DLH} \]

Step 2: Calculate Total Manufacturing Overhead Applied

Using the predetermined overhead rates, we calculate the total manufacturing overhead applied to the job: \[ \text{Applied Overhead (Cutting)} = \text{Predetermined Overhead Rate (Cutting)} \times \text{Actual Machine-Hours (Cutting)} = 54.22 \times 1700 = 92177.78 \] \[ \text{Applied Overhead (Forming)} = \text{Predetermined Overhead Rate (Forming)} \times \text{Actual Direct Labor-Hours (Forming)} = 10.74 \times 1500 = 16108.70 \] \[ \text{Total Applied Overhead} = 92177.78 + 16108.70 = 108286.47 \]

Step 3: Calculate Cost per Unit

First, we sum the direct materials, direct labor, and applied overhead costs: \[ \text{Total Direct Materials} = 82600 + 12300 = 94900 \] \[ \text{Total Direct Labor} = 11600 + 31000 = 42600 \] \[ \text{Total Cost} = 94900 + 42600 + 108286.47 = 245786.47 \]

Next, we calculate the cost per unit: \[ \text{Cost per Unit} = \frac{\text{Total Cost}}{\text{Units Produced}} = \frac{245786.47}{1250} = 196.63 \]

Final Answer

\[ \boxed{ \begin{aligned} &\text{Predetermined Overhead Rate (Cutting)}: \$54.22 \, \text{per MH} \\ &\text{Predetermined Overhead Rate (Forming)}: \$10.74 \, \text{per DLH} \\ &\text{Total Manufacturing Overhead Applied}: \$108286.47 \\ &\text{Cost per Unit}: \$196.63 \\ \end{aligned} } \]

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