Question

Lansing, Inc., provided the following data for its two producing departments: Molding Polishing Total Estimated overhead $400,000 $80,000 $480,000 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 30,000 units of Form A produced and sold and 50,000 of Form B. Required:
1. Calculate the overhead rates for each department.
2. Using departmental rates, assign overhead to the two products and calculate the overhead cost per unit. How does this compare with the plantwide rate unit cost, using direct labor hours?
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, and compare with the plantwide rate unit costs calculated in Requirement 2. What can you conclude from this outcome?

Answer 1

Answer:

1. Form A$80 per machine hour

Form B $4 per direct labor hour

2.Form A from $3.84 to $10.00

Form B from $7.30 to $3.60

3. Form A Unit overhead cost $ 3.87

Form B Unit overhead cost $ 7.28

Explanation:

Lansing, Inc

1. Overhead rates for each department will be;

Molding

$400,000/5,000

= $80 per machine hour

Polishing

$80,000/20,000

= $4 per direct labor hour

2. The overhead assignment:

Form A

($80 ×3,500) + ($4 ×5,000)

$280,000+$20,000

=$300,000

Form B

($80 ×1,500) + ($4 ×15,000)

$120,000+$20,000

=$180,000

Total applied overhead $300,000 and $180,000

Units of production Form A :

300,000÷30,000

=Unit overhead cost $10.00

Units of production Form B

180,000÷50,000

= Unit overhead cost $3.60

Plantwide rate Will be :

$480,000/25,000

= $19.20 per direct labor hour

Form A overhead cost in units will be:

$19.20 ×6,000/30,000

$19.20×0.2

$3.84

Form B overhead cost in unit will be :

$19.20 ×19,000/50,000

$19.20×0.38

$7.296 approximately $7.30

The plantwide rate for Form A

$3.84 to $10.00

The plantwide rate for Form B

$7.30 to $3.60

3. Overhead assignment:

Form A

($80 ×1,200) + ($4 ×5,000)

=$96,000+$20,000

=$116,000

Form B

($80 ×3,800) + ($4 ×15,000)

=$304,000 +$60,000

=$364,000

Total applied overhead

Form A $116,000

Form B $364,000

Units of production

Form A

$116,000 ÷ 30,000

=Unit overhead cost $ 3.87

Form B

$364,000÷ 50,000

Unit overhead cost $ 7.28

When compared to the plantwide unit overhead costs the cost will be $0.03 more higher for Form A and $0.02 less for Form B.

Which means that departmental rates may not cause a change in the assignments because It will depends on the complexity of each product and the way in which the resource demands are been made in each of the department.