Question - Dodger Products uses a job-costing system for its units, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company uses machine hours to apply manufacturing overhead to products in the Machining Department, and direct labor cost to apply manufacturing overhead to products in the Assembly Department.
The following information relates to the Machining Department for the year just ended:
The Machining Department data that follow pertain to job no. 775, the only job in production at year-end.
Required:
A. Assuming the use of normal costing, calculate the predetermined overhead rate that is used in the Machining Department.
B. Compute the cost of the Machining Department's year-end work-in-process inventory.
C. Determine the amount that overhead was under- or overapplied during the year in the Machining Department. Indicate whether it is overapplied or underapplied.
D. If Dodger disposes of the Machining Department's under- or overapplied overhead as an adjustment to Cost of Goods Sold, would the company's Cost-of-Goods-Sold account increase or decrease? Explain.
E. How much overhead would have been charged to the Machining Department's Work-in-Process account during the year?
F. Comment on the appropriateness of direct labor cost to apply manufacturing overhead in the Assembly Department.