A company produces computer chips which go through two operations, operation A1 and operation B2, before they are complete. Expected costs and activities for the two departments are shown below. Departmental overhead rates are based on machine hours in department A1 and direct labor hours in department B2. Therefore, the overhead rates for department A1 and department B2 are $3.62 per machine hour and $5.73 per direct labor hour, respectively.
$$\begin{array} { l c c }
& \text { Department } & \text { Department } \
& \mathrm { A } 1 & \mathrm {~B} 2 \
\text { Machine hours } & 40,000 \mathrm { MH } & 30,000 \mathrm { MH } \
\text { Direct labor hours } & 36,200 \mathrm { DLH } & 28,650 \mathrm { DLH } \
\text { Overhead costs } & \$ 144,800 & \$ 171,900
\end{array}$$

Question

A company produces computer chips which go through two operations, operation A1 and operation B2, before they are complete. Expected costs and activities for the two departments are shown below. Departmental overhead rates are based on machine hours in department A1 and direct labor hours in department B2. Therefore, the overhead rates for department A1 and department B2 are $3.62 per machine hour and $5.73 per direct labor hour, respectively.
 $$\begin{array} { l c c } 
& \text { Department } & \text { Department } \
& \mathrm { A } 1 & \mathrm {~B} 2 \
\text { Machine hours } & 40,000 \mathrm { MH } & 30,000 \mathrm { MH } \
\text { Direct labor hours } & 36,200 \mathrm { DLH } & 28,650 \mathrm { DLH } \
\text { Overhead costs } & \$ 144,800 & \$ 171,900
\end{array}$$

Quizplus · Accepted Answer

The overhead rate for department A1 should be calculated as $144,800 / 40,000 MH = $3.62 per machine hour, which is correct. However, for department B2, the overhead rate should be $171,900 / 28,650 DLH = $6.00 per direct labor hour, not $5.73.

A Company Produces Computer Chips Which Go Through Two Operations