Question

Textra Plastics produces parts for a variety of small machine manufacturers. Most products go through two operations, molding and trimming, before they are ready for packaging. Expected costs and activities for the molding department and for the trimming department for 2017 follow.

	Molding			Trimming
Direct labor hours		42,000	DLH		52,000	DLH
Machine hours		38,500	MH		3,800	MH
Overhead costs	$	740,000		$	570,000

  
Data for two special order parts to be manufactured by the company in 2017 follow.

	Part A27C			Part X82B
Number of units		11,000	units		51,500	units
Machine hours
Molding		5,800	MH		1,160	MH
Trimming		4,200	MH		1,050	MH
Direct labor hours
Molding		5,500	DLH		2,800	DLH
Trimming		700	DLH		3,500	DLH

Required
1. Compute the plantwide overhead rate using direct labor hours as the base.
2. Determine the overhead cost assigned to each product line using the plantwide rate computed in requirement 1.

Answer 1

1) Plantwide overhead rate = Estimated overhead/Estimated direct labor hours

= (740000+570000)/(42000+52000)

Plantwide overhead rate = $13.94 per labor hour

2) Overhead cost assigned to each product line

Part A27C = (5500+700)*13.94 = $86428

Part X82B = (2800+3500)*13.94 = $87822