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The Hernandez Manufacturing Company has two producing departments, machining and assembly.

Mr$.$ Hernandez recently automated the machining department. The installation of a CAM system,

together with robotic workstations, drastically reduced the amount of direct labor required. Meanwhile,

the assembly department remained labor intensive. The company had always used one firm$-$wide rate

based on direct$-$labor hours as the cost$-$allocation base for applying all costs $($except direct materials$)$

to the final products. Mr$.$ Hernandez was considering two alternatives: $(1)$ continue using direct$-$labor

hours as the only cost$-$allocation base, but use different rates in machining and assembly, and $(2)$ using

machine hours as the cost$-$allocation base in the machining department while continuing with direct labor

hours in assembly. Budgeted data for $20$X$0$ are as follows:

$1.$ Suppose Hernandez continued to use one firm$-$wide rate based on direct$-$labor hours to apply all

manufacturing costs $($except direct materials$)$ to the final products. Compute the cost$-$application

rate that would be used.

$2.$ Suppose Hernandez continued to use direct$-$labor hours as the only cost$-$allocation base but used

different rates in machining and assembly.

a$.$ Compute the cost$-$application rate for machining.

b$.$ Compute the cost$-$application rate for assembly.

$3.$ Suppose Hernandez changed the cost accounting system to use machine hours as the cost$-$allocation

base in machining and direct$-$labor hours in assembly.

a$.$ Compute the cost$-$application rate for machining.

b$.$ Compute the cost$-$application rate for assembly.

$4.$ Three products use the following machine hours and direct$-$labor hours:

a$.$ Compute the manufacturing cost of each product $($excluding direct materials$)$ using one

firm$-$wide rate based on direct$-$labor hours.

b$.$ Compute the manufacturing cost of each product $($excluding direct materials$)$ using direct labor

hours as the cost$-$allocation base, but with different cost$-$allocation rates in machining

and assembly.

c$.$ Compute the manufacturing cost of each product $($excluding direct materials$)$ using a cost allocation

rate based on direct$-$labor hours in assembly and machine hours in machining.

d$.$ Compare and explain the results in requirements $4$a$,4$b$,$ and $4$c$.$

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