Stainless Steel Company Has Two Production Departments: a and

Stainless Steel Company has two production departments: A and
B. Stainless Steel has following budgeted overhead costs and activity:
Overhead costs Direct labor hours Machine hours
Department A $ 50,000 10,000 5,000
175,000 5,000 25,000
Total $225,000 15,000 30,000
Production data for job 20 and 21 are given below:
Dept B Dept A Dept B
Prime costs $7,000 $12,000 $22,000 $30,000
Direct labor hours 50 5 60 5
Machine hours 10 40 10 50
Job 20 Job 21
Units produced 100 100
Required:
a. Compare the costs per unit of Job 20 if Stainless Steel uses
1. a plantwide rate based on direct labor hours;
2. a plantwide rate based on machine hours;
3. departmental rates with Department A based on direct
labor hours and Department B using machine hours.
(round to 2 decimal places)
b. Why is there such a variation in the cost per unit? Which method provides the best
cost assignment?