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: 

                                                       Machining   Assembly     Total
Total cost (except direct materials) $540,000  $494,000   $1,034,000
Machine hours                                 90,000            *              90,000
Direct-labor hours                            12,000        38,000        50,000
*Not applicable.
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 cost-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:
                  Machine Hours in Machining   Direct-Labor Hours in Machining     Direct-Labor Hours in Assembly
Product A                10.0                                              2.5                                                     13.0
Product B                18.0                                              3.0                                                     3.3
Product C                11.0                                              2.7                                                     8.5
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