Question

Waterway Artworks creates hand-painted picture frames. The frames are cast from resin in an automated process. Once the casting is done, talented artisans hand-paint one of fifteen designs on each frame. In the final assembly process, a worker inserts the glass pane and attaches the backing to the frame. Waterway’s budget for the current year, along with the production requirements for two of the frames it produces, are as follows: Department Casting Painting Assembly Direct labor hours — 48,000 12,000 Machine hours 17,000 — 3,000 Manufacturing overhead cost $204,000 $220,800 $60,000 Seasons of Fun Frame Department Casting Painting Assembly Direct labor hours — 1 0.25 Machine hours 1.50 — 0.50 Birth Announcement Frame Department Casting Painting Assembly Direct labor hours — 1.50 0.50 Machine hours 0.80 — 0.20 Waterway Artworks’ accountant has been taking a course in managerial accounting and has just learned that overhead should be applied using a causal base. She believes that direct labor hours may not be the best application base for the company and wants to explore the use of machine hours instead. Calculate the predetermined overhead application rate for the year using machine hours as the base. Using this rate, calculate the amount of overhead applied to a Seasons of Fun frame and a Birth Announcement frame.(Round overhead rates to 2 decimal places, e.g. 3.54.)

Answer 1

Overhead rate = ($204000+220800+60000) / 20000 = $24.24 per machine hour

Overhead applied
Seasons of Fun Frame = (1.50+0.50) x $24.24 = $48.48
Birth Announcement Frame = (0.80+0.20) x $24.24 = $24.24

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