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Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787 Exercise 43
DEPARTMENTAL OVERHEAD RATES
Narpet Company produces machine tools and currently uses a plantwide overhead rate, based on machine hours. Ray Johnson, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than can a plantwide rate. Narpet has the following data for its two departments for the coming year:
Required:
1. Compute a predetermined overhead rate for the plant as a whole based on machine hours.
2. Compute predetermined overhead rates for each department using machine hours.
3. Suppose that a machine tool (Product #12X75) used 20 machine hours from Department A and 50 machine hours from Department B. A second machine tool (Product #32Y15) used 50 machine hours from Department A and 20 machine hours from Department B. Compute the overhead cost assigned to each product using the plantwide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Which of the two approaches gives the fairest assignment? Why?
4. Repeat Requirement 3 assuming the expected overhead cost for Department B is $120,000. Now would you recommend departmental rates over a plantwide rate?
Narpet Company produces machine tools and currently uses a plantwide overhead rate, based on machine hours. Ray Johnson, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than can a plantwide rate. Narpet has the following data for its two departments for the coming year:
Required:
1. Compute a predetermined overhead rate for the plant as a whole based on machine hours.
2. Compute predetermined overhead rates for each department using machine hours.
3. Suppose that a machine tool (Product #12X75) used 20 machine hours from Department A and 50 machine hours from Department B. A second machine tool (Product #32Y15) used 50 machine hours from Department A and 20 machine hours from Department B. Compute the overhead cost assigned to each product using the plantwide rate computed in Requirement 1. Repeat the computation using the departmental rates found in Requirement 2. Which of the two approaches gives the fairest assignment? Why?
4. Repeat Requirement 3 assuming the expected overhead cost for Department B is $120,000. Now would you recommend departmental rates over a plantwide rate?
Explanation
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We are given the expected overhead costs...
Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
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