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, and 4c.

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Mnng Assembly Assembly $494.000 Total S1,034,0x Total cost (except direct materials) Machine hours Direct-labor hours $540,000 90,000 12,000 90,000 38,000 50,000 "Not applicable. Machine Hours in Machining 0.0 18.0 11.0 Direct-Labor Hours in Machining 2.5 Direct-Labor Hours in Assembly 13.0 3.3 8.5 Product A Product IB Product C 2.7