Question

Departmental Overhead Rate: Home Run Practice Problem

Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:

	Machining	Assembly	Total
Direct labor-hours	10,000 dlh	90,000 dlh	100,000 dlh
Machine-hours	100,000 mh	5,000 mh	105,000 mh
Direct labor cost	$80,000	$720,000	$800,000
Manufacturing overhead costs	$250,000	$360,000	$610,000

The accounting records of the company show the following data for Job #846:

	Machining	Assembly
Direct labor-hours	50 dlh	120 dlh
Machine-hours	170 mh	10 mh
Direct material cost	$2,700	$1,600
Direct labor cost	$400	$900

Required: SHOW CALCULATIONS FOR ALL AND EXPLAIN IF POSSIBLE!!!

A. Compute the plant-wide overhead allocation rate using direct labor hour as allocation basis.

B. Compute the total cost of Job #846 using direct labor hour as allocation basis.

C. Compute manufacturing overhead allocation rate for each department (Departmental rate).

D. Compute the total cost of Job #846 using departmental overhead allocation rate.

E. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.

Answer 1

a.manufacturing overhead allocation rate for each department

Machine department = 250,000/100000 = 2.5 dlh

Assembly department = 360000/90000 = 4 dlh

b. Total cost of job #846

for Machine department

Direct material = 2700

Direct labour = 400

overhead = (170 mh * 2.5 dlh) = 425

$3525

for Assembly Department

Direct material = 1600

Direct labour =900

overhead = (120 dlh * 4 ) = 480

$2980

e. The reason behind using the two method is that, the machine department involve in the more machine work where as the assembly department involve in the more labour work.