Departmental Overhead Rates
Mariposa, Inc., produces machine tools and currently uses aplantwide overhead rate, based on machine hours. Harry Whipple, theplant manager, has heard that departmental overhead rates can offersignificantly better cost assignments than can a plantwiderate.
Mariposa has the following data for its two departments for thecoming year:
| Department A | Department B |
| Overhead costs (expected) | $480,000 | $120,000 |
| Normal activity (machine hours) | 100,000 | 50,000 |
Required:
1. Compute a predetermined overhead rate forthe plant as a whole based on machine hours.
$ per machine hour
2. Compute predetermined overhead rates foreach department using machine hours. Round your answers to onedecimal place.
| Department A | $ per machine hour |
| Department B | $ per machine hour |
3. Suppose that a machine tool (Product X75)used 70 machine hours from Department A and 160 machine hours fromDepartment B. A second machine tool (Product Y15) used 160 machinehours from Department A and 70 machine hours from Department B.Compute the overhead cost assigned to each product using theplantwide rate computed in Requirement 1.
| Product X75 | Product Y15 |
| Plantwide: | $ | $ |
Repeat the computation using the departmental rates found inRequirement 2.
| Product X75 | Product Y15 |
| Departmental: | $ | $ |
Which of the two approaches gives the fairest assignment?
4. Repeat Requirement 3 assuming the expectedoverhead cost for Department B is $240,000.
| Product X75 | Product Y15 |
| Plantwide: | $ | $ |
| Departmental: | $ | $ |
Would you recommend departmental rates over a plantwiderate?
