Vintage Auto Company manufactures parts to order for antique cars. Vintage Auto makes everything from fenders to engine blocks. Each customer order is treated as a job. Vintage Auto currently has two jobs, No.9823 and No. 9824, that are complete, although overhead has not yet been applied. The company wants to know what each job's cost would be under alternative overhead allocation rates based on: (1) direct labor cost, (2) direct labor hours, and (3)
machine hours. Estimates for this year are as follows:
Direct labor cost .......$250,000
Direct labor hours ........$20,000
Machine hours........$7,000
Overhead costs ........$140,000
Depreciation on machinery accounts for 75 percent of the overhead costs. The job cost sheets show:
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Required:
a. Determine the overhead allocation rate under the three suggested allocation bases. Round to two decimal places.
b. Calculate the cost of Job 9823 and Job 9824 using each of the three bases. Round to two decimal places.
c. Discuss which allocation base appears preferable.