Concept explainers
1.
Calculate the predetermined
1.

Explanation of Solution
Plantwide Overhead Rate: Plantwide overhead rate is the rate a company uses to allocate their manufacturing overhead costs to products and cost centers.
Predetermined factory overhead rate: Predetermined
Calculate budgeted overhead.
Calculate the budgeted direct labor hours.
Calculate the predetermined overhead application rate.
Therefore, the predetermined application rate is $19.48 per direct labor hours.
2.
Compute plant-wide overhead rate.
2.

Explanation of Solution
Calculate the budgeted machine hours.
Calculate the predetermined overhead application rate.
Therefore, the predetermined application rate is $24.35 per machine hours.
3.
Compute the total amount of applied factory overhead.
3.

Explanation of Solution
Compute the total cost allocated.
Allocated Cost | |||
Method | Department A | Department B | Total |
Direct labor hours | $292,200 | $194,800 | $487,000 |
Machine hours | $121,750 | $365,250 | $487,000 |
Table (1)
Supporting computations:
Particulars | Department A | Department B | Total Hours |
Direct labor hours | 15,000 (1) | 10,000 (2) | 25,000 |
Overhead applied | $292,200 (3) | $194,800 (4) | |
Machine hours | 5,000 (5) | 15,000 (6) | 20,000 |
Overhead applied | $121,750 (7) | $365,250 (8) |
Table (2)
Working Notes (1): Calculate the direct labor hour of department A.
(2) Calculate the direct labor hour of department B.
(3) Calculate the overapplied of department A.
(4) Calculate the overapplied of department B.
(5) Calculate machine hour of department A.
(6) Calculate machine hour of department B.
(7) Calculate the overhead applied.
(8) Calculate the overhead applied.
4.
Explain the type of allocation basis used and give reason.
4.

Explanation of Solution
If factory overhead is applied by the direct labor hours, Department A is allotted more than its total estimated overhead and less is assigned to department B. If departmental rate were used Department A will assign more overhead to products and less is assigned to department B. Department A is undercharged and Department B is overcharged, if machine hours are used because each department has a different cost driver. Department A is labor intensive and Department B is a machine intensive. Hence, one single plantwide overhead rate is not appropriate.
5.
Calculate the departmental overhead rate and applied overhead amount.
5.

Explanation of Solution
Calculate the predetermined overhead rate using direct labor hours for department A.
Calculate the applied overhead.
Calculate the predetermined overhead rate using machine hours for department B.
Calculate the applied overhead.
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