Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 48

Plantwide vs. Departmental Overhead Rate Ryan Corporation manufactures auto steering systems. Cost estimates for one unit of the product for the year follow:

This product requires 15 hours of direct labor in Department A and 10 hours in Department B. Also, it requires 5 machine hours in Department A and 15 machine hours in Department B. The factory overhead costs estimated in these two departments follow:

Management expects the firm to produce 1,000 units during the year.
Required
1. Assume that factory overhead was applied on the basis of direct labor hours. Compute the predetermined plantwide factory overhead rate.
2. If factory overhead were applied on the basis of machine hours, what would be the plantwide overhead rate
3. If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2
4. If you were asked to evaluate the performance of each department manager, which allocation basis (cost driver) would you use Why
5. Compute the departmental overhead rate and amount of applied overhead for Department A using direct labor hours as the allocation base and for Department B using machine hours as the allocation base.