Management Account Question: John- the management accountant has implemented a job-order costing system for Fridge-R-Fun using predetermined

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Question:

Management Account Question:

John- the management accountant has implemented a job-order costing system for Fridge-R-Fun using predetermined overhead rates. For this part, the focus is on two different processes in Fridges-R-Fun, namely, welding the pipes to the compressor and assembling the fridges. The predetermined overhead rate for welding is based on machine-hours and the predetermined overhead rate for assembly is based on direct labour-hours.

John has compiled the following estimates for Year 1:

Table 3 – Estimates for Year 1

Estimates	Welding	Assembly
Direct labour-hour	3,600	7,200
Machine-hours	6,000	600
Fixed manufacturing overhead cost	288,000	64,800
Variable manufacturing overhead per machine-hour	$2	-
Variable manufacturing overhead per direct labour-hour	-	$1

The plan is to use the implemented job-order costing system for the following job:

Table 4 – Job

Job	Welding	Assembly
Direct labour-hours	25	80
Machine-hours	40	5
Direct materials	$500	$200
Direct labour cost	$300	$800

1. Predetermined overhead rate used for Welding Department is $50 per MH and $10 per DLH in the Assembly Department.

2. Total overhead cost for both departments is $2,800.

3. Total manufacturing cost for this job is $4,600

4. Unit product cost for this job is $46 per unit.

Please answer the question below:

Considering the industry benchmark for the overhead for assembly is 75% of direct labour cost, identify whether this specific job has an overhead for assembly lower or higher than a job using the industry benchmark. Briefly explain what could cause a difference between this specific job and the industry benchmark for the assembly overhead cost.