Question

E4-19A (Similatoj Test Allen's Fine Funishings manufactures upscale custom furniture. Allen's currently uses a plantwide overhead rate based on direct labor hours to allocate its $1,250,000 of manufacturing overhead to individual jobs. However, Dana Johnson, owner and CEO, is considering refining the company's costing system by using departmental overhead rates. Currently, the Machining Department incurs $770,000 of manufacturing overhead while the Finishing Department incurs $480,000 of manufacturing overhead. Dana has identified machine hours (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing Department. (Click the icon to view the job information.) Read the cequirements Requirement 1. Compute the plantwide overhead rate assuming that Allen's expects to incur 31,250 total DL hours during the year First identify the formula, then compute the rate. (Round your answer to the nearest whole dollar) Plantwide overhead rate

Answer 1

1)Total Manufacturing overhead / cost allocation base (estimated )= Plantwide overhead rate

    1250000 / 31250 = Plantwide overhead rate

      $ 40 per direct labor hour = Plantwide overhead rate

2)

Department overhead rate =Department cost / Department cost allocation base

	Machining	Finishing
Department overhead rate	770000/15400	480000/16000
	=$ 50 PER MH	=$ 30 PER DLH