Dodge Products Uses a Job-Costing System for Its Units, Which

Essay

Dodge Products uses a job-costing system for its units, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The following information relates to the Machining Department for the year just ended: $\begin{array} { l r } \text { Budgeted manufacturing overhead } & \$ 12,000,000 \\\text { Actual manufacturing overhead } & 12,142,000 \\\text { Budgeted machine hours } & 800,000 \\\text { Actual machine hours } & 794,000\end{array}$ The Machining Department data that follow pertain to Job No. 775, the only job in production at year-end. $\begin{array}{l}\begin{array}{lll}\text { Direct material used }\\\text { Direct labour }\\\text { Machine hours }\\\end{array}\begin{array}{lll}\$ 125,000 \\61,800 \\550\end{array}\end{array}$ Required:
A. Assuming the use of normal costing, calculate the predetermined overhead rate that is used in the Machining Department.
B. Compute the cost of the Machining Department's year-end work-in-process inventory.
C. Determine whether overhead was under- or overapplied during the year in the Machining Department.
D. If Dodge disposes of the Machining Department's under- or overapplied overhead as an adjustment to Cost of Goods Sold, would the company's Cost-of-Goods-Sold account increase or decrease? Explain.
E. How much overhead would have been charged to the Machining Department's Work-in-Process account during the year?
F. Comment on the appropriateness of direct labour cost as a cost driver to apply manufacturing overhead in the Assembly Department.