ACCT 2102 1st Edition Lecture 10 Outline of Last Lecture:I. In Class ExampleOutline of Current Lecture:II. Refining the Allocation of MOHIII. Departmental Overhead RatesCurrent 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 MOHRecall 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 niceif 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:• Departmental Overhead Rates• Activity Based CostingIII. Departmental Overhead RatesOne 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 Refined (Departmental) Costing SystemPOHR 1 = $1,000,000 = $80/DL hr 12,500 DL hrsPOHR 1 (machine) = $700,000 = $175/m hr 4,000 m hrsPOHR 2 (assembly) = $300,000 = $30/DL hr 10,000 DL
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