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Condelezza Co. manufactures two products, A and B, in two production departments, Assembly and Finishing. Condelezza Co. expects to produce 10,000 units of Product A and 20,000 units of Product B in the coming year. Budgeted factory overhead costs for the coming year are:

Assembly 310,000
Finishing 240,000
_______
Total $550,000
=======
The machine hours expected to be used in the coming year are as follows:

Assembly Dept. Finishing Dept.
Product A 15,100 9,000
Product B 4,900 11,000
________ ________
Total 20,000 20,000
======= =======Round your answers to two decimal places, if necessary.

a. Compute the plantwide factory overhead rate.

Compute the production department factory overhead rates.

b. Compute the factory overhead per unit for each product using:

The single plantwide rate:

Production department factory overhead rates:

c. Which method is better (plantwide or department)?

Why?

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Answer:

a.

Factory Overhead rate

$13.75 per hour

Production department rates

Assembly =  $15.5 permachine hour

Finishing = $12.0 per machine hour

b.

Plant-wide

Product A = $27.5 per unit

Product B = $13.75 per unit

Department-wide

Product A = $34.21 per unit

Product B = $10.40 perunit

c.

Departmental Method is more accurate.

Explanation:

a.

Factory overhead rates = Total Budgeted Overhead / Total Budgeted Machine Hours

Factory overhead rate = $550,000 / ( 20,000 + 20,000 ) = $13.75 per hour

Production department rates:

Assembly Department = $310,000 / 20,000 machine hours = $15.50 per machine hours

Finishing Department = $240,000 / 20,000 machine hours = $12.00 per machine hours

b.  

Factory overhead cost per unit

Plantwide rate

Product A

Applied Overhead = $13.75 per machine hour x 20,000 hours = $275,000

Overhead per unit = $275,000 / 10,000units =$27.50 per unit

Product B

Applied Overhead = $13.75 per machine hour x 20,000 hours = $275,000 Overhead per unit = $275,000 / 20,000 = $13.75 per unit

Departmental

Product A

Assembly Department = $15.50 per machine hour x 15,100 machine hours = $234,050

Finishing Department = $12.00 per machine hour x 9,000 machine hours = $108,000

Total overhead = $234,050 + $108,000 = $342,050

Per unit = $342,050 / 10,000 = $34.21

Product B

Assembly Department = $15.50 per machine hour x 4,900 machine hours = $75,950

Finishing Department = $12.00 per machine hour x 11,000 machine hour = $132,000

Total = $207,950

Per unit = $207,950 / 20,000= $10.40

c.

The department rate method is more accurate than plantwide.

In plantwide method there is an overcosting of each unit of A and undercosting of each unit of B.

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