Figure 5-3. Mitchell's Softball Gloves Company estimated the following at the beginning of the year:
Mitchell uses departmental overhead rates.In the assembly department,direct labor hours are used to apply overhead.Machine hours are used to apply overhead in the testing department.
Actual data for August is as follows:
Refer to Figure 5-3.Using departmental overhead rates,which of the following is correct?

Question

Figure 5-3. Mitchell's Softball Gloves Company estimated the following at the beginning of the year:
 Mitchell uses departmental overhead rates.In the assembly department,direct labor hours are used to apply overhead.Machine hours are used to apply overhead in the testing department.
Actual data for August is as follows:
 Refer to Figure 5-3.Using departmental overhead rates,which of the following is correct?

Quizplus · Accepted Answer

To calculate overhead application using departmental overhead rates, we need to apply the predetermined overhead rate for each department to its respective activity base - direct labor hours for assembly department and machine hours for testing department.

For Assembly Department: 
Predetermined Overhead Rate = Estimated Overhead / Estimated Direct Labor Hours 
= $324,000 / 18,000 direct labor hours
= $18 per direct labor hour

Applied Overhead = Predetermined Overhead Rate * Actual Direct Labor Hours
= $18 per direct labor hour * 3,000 actual direct labor hours
= $54,000

For Testing Department: 
Predetermined Overhead Rate = Estimated Overhead / Estimated Machine Hours 
= $216,000 / 48,000 machine hours 
= $4.50 per machine hour

Applied Overhead = Predetermined Overhead Rate * Actual Machine Hours 
= $4.50 per machine hour * 1,080 actual machine hours 
= $4,860

Therefore, the correct option is A) Applied overhead for the assembly department is $54,000.