Question

Hartselle enterprises manufactures a variety of hand-finished pottery. Each piece of pottery must go through two critical and relatively standardized processes: molding and firing. Crystal Hartselle, founder of the company, is also responsible for maintaining the company's accounting information system. She currently calculates overhead rates on a month basis.

Crystal recently prepared the following data for last month:

Monthly Costs + Quantities
Direct Material	2,500 pounds ($0.75 per pound)
Direct Labor	300 hours (Pay rate: $7.50 per hour plus benefits at 20% of hourly rate)
Overhead per Department (estimated)	$6,000
Direct Labor Hours (estimated)	300 (200 in molding and 100 in firing)
Machine Hours (estimated)	200 (50 in molding and 150 9in firing)
Actual Overhead Costs
Factory Rent	$3,000
Factory Utilities	3,700
Advertising	2,500
Factory Equipment Depreciation	3,000
Sales Commissions	2,500

A.) Calculate a plant wide predetermined overhead rate using direct labor hours as the cost driver.

B.) Calculate a plant wide predetermined overhead rate using machine hours as the cost driver.

C.) Using the plant wide rate calculated on the basis of direct labor hours, how much overhead wool be applied to a job requiring 25 direct labor hours?

D.) Using the plantwide rate calculated on the basis of machine hours, how much overhead would be applied to a job requiring 5 machine hours?

E.) Crystal is considering the use of departmental overhead rates. Assume that the cost driver for the molding department is direct labor hours and that the cost driver for the firing department is machine hours. How much overhead would be applied to a job using 10 direct labor hours ad 3 machine hours in the molding department and 4 direct labor hours and 2 machine hours in the firing department?

Answer 1

a)	Plant wide predetermined overhead rate				=	Estimated total OH / Estimated Direct Labor Hours
					=	$ 12000 / 300
					=	$   40.00

b)	Plant wide predetermined overhead rate				=	Estimated total OH / Estimated Machine Hours
					=	$ 12000 / 200
					=	$   60.00

c)

OH applied to job

$ 1,000.00

($ 40 x 25 DLHs)

d)

OH applied to job

$    300.00

($ 60 x 5 MHs)

e)	OH applied to job
	Molding	(10 x $ 30)	$ 300.00
	Firing	(2 x $ 40)	$   80.00
			$ 380.00

Workings:

Particulars			Molding	Firing
Estimated OH		(a)	$ 6,000.00	$ 6,000.00
Direct Labor Hours		(b)	200
Machine Hours		(c)		150
OH rate			$      30.00	$      40.00
			(a/b)	(a/c)