Donovan's Fine Furnishings manufactures upscale custom furniture. Donovan's currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,290,000 of manufacturing overhead to individual jobs. However, Donna Cermak, owner andCEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $870,000 of manufacturing overhead while the Finishing Department incurs $420,000 of manufacturing overhead. Donna has identified machine hours (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor(DL) hours as the primary cost driver in the Finishing Department. The Donovan's plant completed Jobs 450 and 455 on May 15. Both jobs incurred a total of 66 DL hours throughout the entire production process. Job 450 incurred 11 MH in the Machining Department and 55 DL hours in the Finishing Department (the other DL hour occurred in the MachiningDepartment). Job 455 incurred 44 MH in the Machining Department and 44 DL hours in the Finishing Department (the other two DL hours occurred in the MachiningDepartment).
Requirement 1. Compute the plantwide overhead rate assuming that Donovan's expects to incur 30,000 total DL hours during the year. First identify the formula, then compute the rate. (Round your answer to the nearest whole dollar.)
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Plantwide overhead rate
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Requirement 2. Compute departmental overhead rates assuming that Donovan's
expects to incur 14,500 MH in the Machining Department and 17,500 DL hours in the Finishing Department during the year. First identify the formula, then compute the rate for each department.(Round your answers to the nearest wholedollar.)
Departmental
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overhead rate
Machining
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per mach. hour
Finishing
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per DL hour
Requirement 3. If Donovan's continues to use the plantwide overhead rate, how much manufacturing overhead would be allocated to Job 450 and Job 455? First identify the formula, then calculate the amount of manufacturing overhead that would be allocated to the jobs if the plantwide overhead rate is used.(Round your answers to the nearest whole dollar.)
Manufacturing overhead
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allocated
Job 450
x
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Job 455
x
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Requirement 4. If Donovan's uses departmental overhead rates, how much manufacturing overhead would be allocated to Job 450 and Job 455? Use the following table to calculate the amount of manufacturing overhead that would be allocated to the jobs if the departmental overhead rates are used. (Round your answers to the nearest whole dollar.)
Job 450
Job 455
Machining
Finishing
Total overhead allocation
Requirement 5. Based on your answers to Requirements 3 and 4, does the plantwide overhead rate overcost or undercost either job? Explain. If Donovan's sells its furniture at 125% of cost, will its choice of allocation systems affect product pricing? Explain.
The single plantwide rate (overcosts/undercosts) Job 450 by $ __ and (overcosts/undercosts) Job 455 by $ ___.
Since Donovan's sets its sales price at 125% of cost, and the job cost is (affected/unaffected) by th eallocation system it uses, it sales price will (be affected/will not be affected) by the allocation system it uses.