Noteperfect Ltd manufactures sheet music stands in two separate departments: Cutting and welding:

One of Noteperfect's major products, the A Frame, has the following production requirements:

Required:
1. Calculate the manufacturing overhead cost of the A Frame using:
(a) A predetermined plantwide rate based on direct labour hours.
(b) A predetermined plantwide rate based on machine hours.
(c) Predetermined departmental rates based on direct labour hours for the Cutting Department and on machine hours for the Welding Department. Which of these three estimates of overhead cost is likely to be the most accurate? Explain.
2. Calculate the manufacturing overhead cost of the A Frame, using an actual costing system and departmental overhead rates based on labour hours for Cutting and on machine hours for Welding. Explain why cost drivers must be used with actual costing as well as with normal costing.
3. Which estimate of overhead costs is likely to be more accurate-that based on predetermined departmental rates or that based on actual departmental rates? Explain.

Transcribed Image Text:

Cutting Department Welding Department Total Plant $60 000 $120 000 Budgeted manufacturing overhead $180 000 Actual manufacturing overhead 162 000 108 000 54 000 Budgeted machine hours Actual machine hours 96 000 24 000 120 000 117 000 27 000 90 000 15 000 45 000 41 100 Budgeted direct labour hours 30 000 Actual direct labour hours 29 400 11 700 Product: A Frame Welding Department Cutting Department Total plant Machine hours 2.5 4.0 6.5 Direct labour hours 4.0 1.0 5.0