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Tangipahoa Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products.Manufacturing overhead costs are applied on the basis of machine hours in the Machining Department and on the basis of direct labor dollars in the Assembly Department. At the beginning of 2007, the following estimates were provided for the coming year:Machining AssemblyDirect labor hours 20,000 40,000Machine hours 40,000 20,000Direct labor cost $400,000 $920,000Manufacturing Overhead costs $440,000 $460,000The accounting records of the company show the following data for Product #A273:Machining AssemblyDirect labor hours 50 100Machine hours 200 50Direct material cost $2,100 $1,200Direct labor cost $1,000 $2,300Required:a. Compute the predetermined manufacturing overhead cost driver rate for each department.b. Compute the total cost of Product #A273.c. Provide possible reasons why Tangipahoa Manufacturing uses two different cost drivers.

Respuesta :

Answer:

a. Machining Department cost driver rate: $11.00 / mh = $440,000/40,000 mh

Assembly Department cost driver rate: $.50 / dl$ = $460,000/$920,000 dl$

b. Total cost of Product #A273 is $9,950 = Direct materials $3,300 + Direct labor $3,300 + Overhead costs $3,350 (Machining $2,200 + Assembly $1,150).

c. Ideally, cost driver(s) should reflect the factor(s) that cause manufacturing overhead costs to increase. Apparently, Tangipahoa regards the use of machines as the principal cause of manufacturing overhead costs (such as depreciation and repairs) in the Machining Department. In contrast, Tangipahoa regards direct labor dollars as the principal cause of manufacturing overhead costs (such as indirect labor) in the Assembly Department. This suggests that the products vary in complexity and may require workers with different skill levels and therefore different wage rates.

Each department uses different types and amounts resources. More than one factor is driving manufacturing overhead costs.