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Rafner Manufacturing identified the following budgeted data in its two production departments. Assembly $1,200,000 Finishing $ 600,000 Manufacturing overhead costs Direct labor hours 12,000 DLH 6,000 MH Machine hours 20,000 DLH 16,000 MH Required: What is the company's assembly department overhead rate using direct labor hours? Answer is complete but not entirely correct. The departmental overhead rate for Assembly $ 1,800,000 $ 56.25 per direct material dollar Estimated overhead costs Estimated direct labor hours 32,000 X

Rafner Manufacturing identified the following budgeted data in its two production departments. Assembly $1,200,000 Finishing $ 600,000 Manufacturing overhead costs Direct labor hours 12,000 DLH 6,000 MH Machine hours 20,000 DLH 16,000 MH Required: What is the company's assembly department overhead rate using direct labor hours? Answer is complete but not entirely correct. The departmental overhead rate for Assembly $ 1,800,000 $ 56.25 per direct material dollar Estimated overhead costs Estimated direct labor hours 32,000 X

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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### Budget Data in Rafner Manufacturing's Production Departments Rafner Manufacturing identified the following budgeted data in its two production departments: **Assembly Department** - Manufacturing overhead costs: $1,200,000 - Direct labor hours: 12,000 DLH - Machine hours: 6,000 MH **Finishing Department** - Manufacturing overhead costs: $600,000 - Direct labor hours: 20,000 DLH - Machine hours: 16,000 MH ### Required: What is the company’s assembly department overhead rate using direct labor hours? --- ### Calculation of Overhead Rate The following is the detailed calculation for determining the assembly department overhead rate based on direct labor hours: 1. **Estimated Overhead Costs** - Amount: $1,800,000 2. **Estimated Direct Labor Hours** - Hours: 32,000 3. **Departmental Overhead Rate Calculation** - Using the formula: \[ \text{Overhead Rate} = \frac{\text{Estimated Overhead Costs}}{\text{Estimated Direct Labor Hours}} \] - Substituting the given values: \[ \text{Overhead Rate} = \frac{1,800,000}{32,000} = 56.25 \] - Unit: per direct material dollar ### Observations - The answer indicates that while the calculation is complete, it is not entirely correct. - The provided overhead rate given as \( \$56.25 \) per direct material dollar is accompanied by an error marking. This information outlines the process and identifies the necessary steps to correctly calculate the assembly department's overhead rate based on direct labor hours, although it suggests a revision may be necessary.
Transcribed Image Text:### Budget Data in Rafner Manufacturing's Production Departments Rafner Manufacturing identified the following budgeted data in its two production departments: **Assembly Department** - Manufacturing overhead costs: $1,200,000 - Direct labor hours: 12,000 DLH - Machine hours: 6,000 MH **Finishing Department** - Manufacturing overhead costs: $600,000 - Direct labor hours: 20,000 DLH - Machine hours: 16,000 MH ### Required: What is the company’s assembly department overhead rate using direct labor hours? --- ### Calculation of Overhead Rate The following is the detailed calculation for determining the assembly department overhead rate based on direct labor hours: 1. **Estimated Overhead Costs** - Amount: $1,800,000 2. **Estimated Direct Labor Hours** - Hours: 32,000 3. **Departmental Overhead Rate Calculation** - Using the formula: \[ \text{Overhead Rate} = \frac{\text{Estimated Overhead Costs}}{\text{Estimated Direct Labor Hours}} \] - Substituting the given values: \[ \text{Overhead Rate} = \frac{1,800,000}{32,000} = 56.25 \] - Unit: per direct material dollar ### Observations - The answer indicates that while the calculation is complete, it is not entirely correct. - The provided overhead rate given as \( \$56.25 \) per direct material dollar is accompanied by an error marking. This information outlines the process and identifies the necessary steps to correctly calculate the assembly department's overhead rate based on direct labor hours, although it suggests a revision may be necessary.
### Activity-Based Costing in Manufacturing Activity-based costing (ABC) is a method used by manufacturers to assign overhead costs to products based on activities. Below is an example of budgeted cost information for selected activities for the next year. #### Activity Cost Information | Activity | Expected Cost | Cost Driver | Expected Usage of Cost Driver | |----------------------|----------------|----------------------|-----------------------------| | Purchasing | $135,000 | Purchase orders | 4,500 purchase orders | | Cleaning factory | $32,000 | Square feet | 5,000 square feet | | Providing utilities | $65,000 | Square feet | 5,000 square feet | ### Computation of Activity Rates To compute activity rates for each of the cost pools, use the formula: \[ \text{Activity Overhead Rate} = \frac{\text{Expected Cost}}{\text{Expected Usage of Cost Driver}} \] ### Cost Pool Rate Calculation #### Purchasing - **Expected Costs**: $135,000 - **Expected Amount of Cost Driver**: 4,500 purchase orders \[ \text{Activity Overhead Rate} = \frac{135,000}{4,500} = 30.00 \text{ per purchase order} \] #### Factory Cleaning - **Expected Costs**: $32,000 - **Expected Amount of Cost Driver**: 5,000 square feet \[ \text{Activity Overhead Rate} = \frac{32,000}{5,000} = 6.40 \text{ per square foot} \] ### Summary of Activity Rates | Activity Cost Pool | Expected Costs | Expected Amount of Cost Driver | Activity Overhead Rate | |--------------------|----------------|--------------------------------|-----------------------------| | Purchasing | $135,000 | 4,500 | $30.00 per purchase order | | Factory Cleaning | $32,000 | 5,000 | $6.40 per square foot | **Note**: The overhead rate calculation for providing utilities is missing from this data and needs to be computed for completeness. Use the computed activity rates to more accurately assign costs to products, ensuring a better understanding of production costs and improving decision-making regarding pricing, budgeting, and cost management. #### Notes - Ensure all the activity costs and cost drivers are correctly identified and used in
Transcribed Image Text:### Activity-Based Costing in Manufacturing Activity-based costing (ABC) is a method used by manufacturers to assign overhead costs to products based on activities. Below is an example of budgeted cost information for selected activities for the next year. #### Activity Cost Information | Activity | Expected Cost | Cost Driver | Expected Usage of Cost Driver | |----------------------|----------------|----------------------|-----------------------------| | Purchasing | $135,000 | Purchase orders | 4,500 purchase orders | | Cleaning factory | $32,000 | Square feet | 5,000 square feet | | Providing utilities | $65,000 | Square feet | 5,000 square feet | ### Computation of Activity Rates To compute activity rates for each of the cost pools, use the formula: \[ \text{Activity Overhead Rate} = \frac{\text{Expected Cost}}{\text{Expected Usage of Cost Driver}} \] ### Cost Pool Rate Calculation #### Purchasing - **Expected Costs**: $135,000 - **Expected Amount of Cost Driver**: 4,500 purchase orders \[ \text{Activity Overhead Rate} = \frac{135,000}{4,500} = 30.00 \text{ per purchase order} \] #### Factory Cleaning - **Expected Costs**: $32,000 - **Expected Amount of Cost Driver**: 5,000 square feet \[ \text{Activity Overhead Rate} = \frac{32,000}{5,000} = 6.40 \text{ per square foot} \] ### Summary of Activity Rates | Activity Cost Pool | Expected Costs | Expected Amount of Cost Driver | Activity Overhead Rate | |--------------------|----------------|--------------------------------|-----------------------------| | Purchasing | $135,000 | 4,500 | $30.00 per purchase order | | Factory Cleaning | $32,000 | 5,000 | $6.40 per square foot | **Note**: The overhead rate calculation for providing utilities is missing from this data and needs to be computed for completeness. Use the computed activity rates to more accurately assign costs to products, ensuring a better understanding of production costs and improving decision-making regarding pricing, budgeting, and cost management. #### Notes - Ensure all the activity costs and cost drivers are correctly identified and used in
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