Question:
Red River Farm Machine makes a wide variety of products, all of which must be processed in the Cutting and Assembly departments. For the year 2010, Red River budgeted total overhead of $993,000, of which $385,500 will be incurred in Cutting and the remainder will be incurred in Assembly. Budgeted direct labor and machine hours are as follows:
|
Cutting
|
Assembly
|
|
Budgeted direct labor hours
|
27,000
|
3,000
|
|
Budgeted machine hours
|
2,100
|
65,800
|
Two products made by Red River are the RW22SKI and the SD45ROW. The followin
cost and production time information on these items has been gathered:
RW22SKI SD45ROW
|
Direct material
|
$34.85
|
$19.57
|
|
Direct labor rate in Cutting
|
$20.00
|
$20.00
|
|
Direct labor rate in Assembly
|
$ 8.00
|
$ 8.00
|
|
Direct labor hours in Cutting
|
6.00
|
4.80
|
|
Direct labor hours in Assembly
|
0.03
|
0.05
|
|
Machine hours in Cutting
|
0.06
|
0.15
|
|
Machine hours in Assembly
|
5.90
|
9.30
|
a. What is the plant wide predetermined OH rate based on (1) direct labor hours and (2) machine hours for the upcoming year? Round all computations to the nearest cent.
b. What are the departmental predetermined OH rates in Cutting and Assembly using the most appropriate base in each department? Round all computations to the nearest cent.
c. What are the costs of products RW22SKI and SD45ROW using (1) a plant wide rate based on direct labor hours, (2) a plant wide rate based on machine hours, and (3) departmental rates calculated in part (b)?
d. A competitor manufactures a product that is extremely similar to RW22SKI and sells each unit of it for $310. Discuss how Red River's management might be in?uenced by the impact of the di?erent product costs calculated in part (c).