Question

Departmental Overhead Rates

Lansing, Inc., provided the following data for its two producing departments:

		Molding		Polishing		Total
Estimated overhead		$375,000		$100,000		$475,000
Direct labor hours (expected and actual):
Form A		1,000		5,000		6,000
Form B		4,000		15,000		19,000
Total		5,000		20,000		25,000
Machine hours:
Form A		3,500		3,000		6,500
Form B		1,500		2,000		3,500
Total		5,000		5,000		10,000

Machine hours are used to assign the overhead of the Molding Department, and direct labor hours are used to assign the overhead of the Polishing Department. There are 25,000 units of Form A produced and sold and 50,000 of Form B.

Required:

1. Calculate the overhead rates for each department.

Molding	$ per machine hour
Polishing	$ per direct labor hour

2. Using departmental rates, assign overhead to the two products and calculate the overhead cost per unit. Round your answers to the nearest cent.

	Unit Overhead Cost
Assigned unit overhead cost for Form A	$ per unit
Assigned unit overhead cost for Form B	$ per unit

How does this compare with the plantwide rate unit cost, using direct labor hours?
Relative to the plantwide rate, the cost increased  for Form A and decreased  for Form B.

3. What if the machine hours in Molding were 1,200 for Form A and 3,800 for Form B and the direct labor hours used in Polishing were 5,000 and 15,000, respectively? Calculate the overhead cost per unit for each product using departmental rates. Round your answers to the nearest cent.

	Unit Overhead Cost
Form A	$ per unit
Form B	$ per unit

Compare with the plantwide rate unit costs calculated in Requirement 2. What can you conclude from this outcome?

Relative to the plantwide rate, the cost increased  for Form A and decreased  for Form B.

Answer 1