Question

The Hernandez Manufacturing Company has two producing departments, machining and assembly. Mr. Hernandez recently automated the machining department. The installation of a CAM system, together with robotic workstations, drastically reduced the amount of direct labor required. Meanwhile, the assembly department remained labor intensive. The company had always used one firm-wide rate based on direct-labor hours as the cost-allocation base for applying all costs (except direct materials) to the final products. Mr. Hernandez was considering two alternatives: (1) continue using direct-labor hours as the only cost-allocation base, but use different rates in machining and assembly, and (2) using machine hours as the cost-allocation base in the machining department while continuing with direct-labor hours in assembly. Budgeted data for 20X0 are as follows:


1. Suppose Hernandez continued to use one firm-wide rate based on direct-labor hours to apply all manufacturing costs (except direct materials) to the final products. Compute the cost-application rate that would be used.
2. Suppose Hernandez continued to use direct-labor hours as the only cost-allocation base but used different rates in machining and assembly.
a. Compute the cost-application rate for machining.
b. Compute the cost-application rate for assembly.
3. Suppose Hernandez changed the cost accounting system to use machine hours as the co st-allocation base in machining and direct-labor hours in assembly.
a. Compute the cost-application rate for machining.
b. Compute the cost-application rate for assembly.
4. Three products use the following machine hours and direct-labor hours:




a. Compute the manufacturing cost of each product (excluding direct materials) using one firm-wide rate based on direct-labor hours.
b. Compute the manufacturing cost of each product (excluding direct materials) using direct- labor hours as the cost-allocation base, but with different cost-allocation rates in machining and assembly.
c. Compute the manufacturing cost of each product (excluding direct materials) using a cost- allocation rate based on direct-labor hours in assembly and machine hours in machining.
d. Compare and explain the results in requirements 4a, 4b, and4c.


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  • CreatedNovember 19, 2014
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