Entry Rules:

Follow the exact entry rules provided on the Information Sheet for Term Test 1.

Question:

Super Rat Machine Works, a manufacturing firm, manufactures sprockets for the Tree Bicycle company. The company uses a normal job-order costing system. Currently they are using a plantwide overhead rate based on direct labour hours and are interested in understanding the impact of moving to a departmental overhead rate structure with Cutting and Finishing departments using direct labour hours and Machining department using machine hours.

Management has provided the following data for its three departments for the coming year.

Estimated overhead costs per department
Cutting		$85,000
Machining		$245,000
Finishing		$21,000
Estimated normal activity per department (direct labour hours)
Cutting		1,000
Finishing		4,200
Estimated normal activity (machine hours)
Machining		45,000

Management estimates costs and activities for a job, Job 1, and they need to provide a quote to their customer. The quote price includes a 30% mark up on the cost of the job. Management estimates are noted below.

	Job 1
Direct materials	$5,500
Direct labour cost	$2,000
Direct labour hours
Cutting	100
Finishing	300
Number of machine hours
Machining	400

Using the above information to answer the following questions.

Calculate the departmental overhead rate for the Cutting department.

Calculate the departmental overhead rate for the Machining department.

Calculate the departmental overhead rate for the Finishing department.

Using departmental overhead rates, calculate the bid price for Job 1