Question

Textra produces parts for a machine manufacturer. Parts go through two departments, Molding and Trimming. The company budgets overhead cost of $258,750 in the Molding department and $218,750 in the Trimming department. The company budgets 16,000 machine hours (MH) in Molding and 25,000 direct labor hours (DLH) in Trimming. Actual production information follows. Number of Units Molding Department Trimming Department Hours per Unit Total Hours Hours per Unit Total Hours Part Z 3,000 2.0 MH per unit 6,000 MH 3 DLH per unit 9,000 DLH Part X 4,000 2.5 MH per unit 10,000 MH 4 DLH per unit 16,000 DLH Totals 16,000 MH 25,000 DLH Required: 1. Compute a departmental overhead rate for the Molding department based on machine hours and a departmental overhead rate for the Trimming department based on direct labor hours. 2. Determine the overhead cost per unit for each part using the departmental rates.

Answer 1

1 a. Departmental overhead rate for the Molding Department based on machine hours = $16.17 ($258,750/16,000)

1 b. Departmental overhead rate for the Trimming Department based on direct labor hours = $8.75 ($218,750/25,000)

2. Overhead cost per unit for each part based on departmental rates:

                                           Part Z                           Part X

Molding department        $32.34 ($16.17 x 2)       $40.43 ($16.17 x 2.5 MH)

Trimming department     $26.25 ($8.75 x 3)        $35.00 ($8.75 x 4)

Overhead cost per unit  $58.59                          $75.43

Data and Calculations:

                                                Molding       Trimming

Budgeted overhead cost     $258,750      $218,750

Budgeted machine hours         16,000         25,000

Actual Production:

              Molding Department                     Trimming Department

               Hours      Units   Total Hours    Hours      Units    Total Hours  

             per Unit                                      per Unit

Part Z    2.0 MH    3,000    6,000 MH      3 DLH     3,000      9,000 DLH

Part X   2.5 MH    4,000   10,000 MH      4 DLH     4,000      16,000 DLH

Totals                                16,000 MH                                    25,000 DLH

Thus, the Overhead cost per unit for Part Z is $58.59 and for Part X is $75.43.

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