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. Mitchell decides to continue using departmental overhead rates. What are the predetermined rates for the Assembly and Testing departments respectively?

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. Mitchell decides to continue using departmental overhead rates. What are the predetermined rates for the Assembly and Testing departments respectively?

Quizplus · Accepted Answer

According to the given information, Mitchell uses departmental overhead rates. In the assembly department, direct labor hours are used to apply overhead, and the estimated overhead costs are $60,000, and the estimated direct labor hours are 15,000, so the predetermined overhead rate for the assembly department is $4 per direct labor hour ($60,000/15,000). In the testing department, machine hours are used to apply overhead, and the estimated overhead costs are $72,000, and the estimated machine hours are 36,000, so the predetermined overhead rate for the testing department is $2 per machine hour ($72,000/36,000). Therefore, the answer is A.