Departmental Overhead Rates
Lansing, Inc., provided the following data for its two producingdepartments:
| | 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 | | 3,600 | | 3,000 | | 6,600 |
| Form B | | 1,400 | | 2,000 | | 3,400 |
| Total | | 5,000 | | 5,000 | | 10,000 |
Machine hours are used to assign the overhead of the MoldingDepartment, and direct labor hours are used to assign the overheadof the Polishing Department. There are 25,000 units of Form Aproduced and sold and 50,000 of Form B.
Required:
1. Calculate the overhead rates for eachdepartment.
| Molding | $ per machine hour |
| Polishing | $ per direct labor hour |
2. Using departmental rates, assign overhead tothe two products and calculate the overhead cost per unit. Roundyour answers to the nearest cent.
| Unit Overhead Cost |
| Assigned unit overhead cost for Form A | $ per unit |
| Assigned unit overhead cost for Form B | $ per unit |
How does this compare with the plantwide rate unit cost, usingdirect labor hours?
Relative to the plantwide rate, the cost increased forForm A and decreased for Form B.
3. What if themachine hours in Molding were 1,200 for Form A and 3,800 for Form Band the direct labor hours used in Polishing were 5,000 and 15,000,respectively? Calculate the overhead cost per unit for each productusing departmental rates. Round your answers to the nearestcent.
| Unit Overhead Cost |
| Form A | $ per unit |
| Form B | $ per unit |
Compare with the plantwide rate unit costs calculated inRequirement 2. What can you conclude from this outcome?
Relative to the plantwide rate, the costincreased for Form A and decreased for Form B.
Feedback
1. For departmental rates, OH rates areassigned to each production department either per machine hrs. ordirect labor hrs. Dept. estimated OH ÷ machine hour = rate permachine hour. Dept. estimated OH ÷ direct labor hour = rate perdirect labor hour
2. Machine hours are used to assign OH of theMolding Dept. and direct labor hours are used to assign OH of thePolishing Dept. Total applied OH ÷ Units of production = Unit OHcost (each form). Plantwide rate = total estimated OH ÷ totaldirect hours
3. Use new numbers given and calculate OH thesame as in Requirement 1 & 2, compare departmental toplantwide, and give conclusion of the results.
