ACCT 2102 1st Edition Lecture 10 Outline of Last Lecture I In Class Example Outline of Current Lecture II Refining the Allocation of MOH III Departmental Overhead Rates Current Lecture Refining MOH Chapter 4 Ms Farmer answered a few questions from the test last Wednesday Office hours and sign up sheets are available if you want to review your test II Refining the Allocation of MOH Recall from the last chapter that we are fairly unsure about the true amount of MOH that should be allocated to any Job We saw that the amount of MOH accountants assign to jobs is heavily dependent upon the allocation base used DL hours Machine hours Wouldn t it be nice if we could get a more accurate allocation of MOH a number that we feel we could really trust That s exactly what we will attempt to do in this chapter Two ways of depicting a more accurate allocation of MOH which will be discussed throughout this chapter are III Departmental Overhead Rates Activity Based Costing Departmental Overhead Rates One way to refine our costing system is to use departmental overhead rates rather than a single plant wide overhead rate which we did in the previous chapter Mands Industries manufactures its product in two unique departments Machining and Assembly The Machine department is heavily automated using manufacturing robotics that requires little human labor time The Assembly department on the other hand is very labor intensive requiring much supervision and quality control These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute The company s MOH costs for the year are budgeted at 1 000 000 Of this amount 700 000 relates to the machining department primarily for utilities to run the machines and machine repairs maintenance and depreciation while 300 000 relates to the assembly department indirect supervisory and quality control labor Mands thinks it will incur 4 000 machine hours during the year all in the machining department and 12 500 DL hours 2 500 in the machining department and 10 000 in the assembly department Traditional Costing System Plant wide Overhead Rate Calculate the company s plant wide overhead rate assuming the company uses DL hours as its allocation base POHR Allocated MOH DL Hours Refined Costing System Departmental Overhead Rates Show how the MOH costs can be separated into different cost pools for allocation purposes Calculate departmental overhead rates assuming the company would use machine hours as the allocation base for the Machining department and DL hours as the allocation base for the Assembly department Traditional Costing System POHR 1 1 000 000 12 500 DL hrs 80 DL hr Refined Departmental Costing System POHR 1 machine 700 000 175 m hr 4 000 m hrs POHR 2 assembly 300 000 30 DL hr 10 000 DL hrs
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