Question

Laval produces lamps and home lighting fixtures. Its most popular product is a brushed aluminum desk lamp. This lamp is made from components shaped in the fabricating department and assembled in the assembly department. Information related to the 22,000 desk lamps produced annually follows.

Direct materials	$	270,000
Direct labor
Fabricating department (6,500 DLH × $20 per DLH)	$	130,000
Assembly department (16,200 DLH × $28 per DLH)	$	453,600
Machine hours
Fabricating department		14,200	MH
Assembly department		21,050	MH

  
Expected overhead cost and related data for the two production departments follow.

	Fabricating			Assembly
Direct labor hours		190,000	DLH		310,000	DLH
Machine hours		159,000	MH		120,000	MH
Overhead cost	$	350,000		$	425,000

  
Required
1. Determine the plantwide overhead rate for Laval using direct labor hours as a base.
2. Determine the total manufacturing cost per unit for the aluminum desk lamp using the plantwide overhead rate.
3. Compute departmental overhead rates based on machine hours in the fabricating department and direct labor hours in the assembly department.
4. Use departmental overhead rates from requirement 3 to determine the total manufacturing cost per unit for the aluminum desk lamps.

Answer 1

1) Plantwide overhead rate = (350000+425000)/500000 = 1.55 per labor hour

2) Calculate manufacturing cost per unit

Direct material	270000
Direct labor	583600
Overhead (22700*1.55)	35185
Total cost	888785
Unit	22000
Unit cost	40.40

2) Departmental rate :

Fabricating = 190000/159000 = 1.19 per MH

Assembly = 425000/310000 = 1.37 per DLH

3) Calculate following

Direct material	270000
Direct labor	583600
Overhead (14200*1.19+16200*1.37)	39092
Total cost	892692
Unit	22000
Unit cost	40.58