Question

            

Travelcraft, Inc., manufactures a complete line of fiberglass suitcases and attaché cases. The firm has three manufacturing departments: Molding, Component, and Assembly. There are also two service departments: Power and Maintenance.

The sides of the cases are manufactured in the Molding Department. The frames, hinges, and locks are manufactured in the Component Department. The cases are completed in the Assembly Department. Varying amounts of materials, time, and effort are required for each of the cases. The Power Department and Maintenance Department provide services to the three manufacturing departments.

Travelcraft has always used a plantwide overhead rate. Direct-labor hours are used to assign overhead to products. The predetermined overhead rate is calculated by dividing the company’s total estimated overhead by the total estimated direct-labor hours to be worked in the three manufacturing departments.

Karen Mason, director of cost management, has recommended that Travelcraft use departmental overhead rates. The planned operating costs and expected levels of activity for the coming year have been developed by Mason and are presented by department in the following schedules. (All numbers are in thousands.)

	Manufacturing Departments
	Molding			Component			Assembly
Department activity measures:
Direct-labor hours		600			2,000			1,400
Machine hours		965			160			0
Departmental costs:
Direct material	$	13,400		$	34,000		$	1,340
Direct labor		4,600			24,000			12,000
Variable overhead		4,000			14,000			23,000
Fixed overhead		19,100			6,700			6,600
Total departmental costs	$	41,100		$	78,700		$	42,940
Use of service departments:
Maintenance:
Estimated usage in labor hours           for the coming year		100			40			20
Power (in kilowatt-hours):
Estimated usage for the coming year		450			350			200
Maximum allotted capacity		900			600			300

	Service Departments
	Power			Maintenance
Departmental activity measures:
Maximum capacity		1,800	kilowatt-hours	Adjustable
Estimated usage for the coming year		1,000	kilowatt-hours		160	hours
Departmental costs:
Materials and supplies	$	7,000		$	1,400
Variable labor		3,400			2,480
Fixed overhead		15,600			120
Total service department costs	$	26,000		$	4,000

1.	Calculate the plantwide overhead rate for Travelcraft, Inc., for the coming year using the same method as used in the past. (Round your answer to 2 decimal places.)

2.

Karen Mason has been asked to develop departmental overhead rates for comparison with the plantwide rate. The following steps are to be followed in developing the departmental rates. (Do not round intermediate calculations. Enter all your answers in thousands except "Departmental overhead rate" which should be entered in dollars rounded to 2 decimal places.)

a.	The Maintenance Department costs should be allocated to the three manufacturing departments using the direct method.
b.	The Power Department costs should be allocated to the three manufacturing departments using dual cost allocation combined with the direct method. Fixed costs are to be allocated according to maximum allotted capacity, and variable costs are to be allocated according to planned usage for the coming year.
c.	Calculate departmental overhead rates for the three manufacturing departments using a machine-hour cost driver for the Molding Department and a direct-labor-hour cost driver for the Component and Assembly departments.

                                    

Answer 1

Answer 1.

Plant-wide Overhead Rate as used in the past
	Manufacturing Departments
Cost Details	Molding	Component	Assembly	Total
Manufacturing Department overhead costs:
Variable Overhead	4000	14000	23000	41,000
Fixed Overhead	19,100	6,700	6600	32400
Total Department Overhead costs	23100	20700	29600	73400
Service Department costs:
Power				26000
Maintenance				4000
Total Service Department Overhead costs				30000
Total Company-wide Overheads (A + B) - (in $)				103400
Department Activity measure:
Direct Labour Hour (In Hours)	600	2,000	1,400	4,000
Plant-wide Overhead Rate Total overhead / Labor Hour	[103400/4000] 25.85

Answer 2.

	Service Departments		Manufacturing Departments			Total
Cost Details	Power	Maintenance	Molding	Component	Assembly
Total Department Overhead costs (In US $)	26000	4,000	23,100	20700	29600	103400
Allocation of Maintenance Costs using Direct Method:		(4,000)	100	40	20	160
Allocation of maintenance costs using direct method in the ratio 100/160:40/160:20/160			2,500	1000	500	4,000
Allocation of Power costs as per Dual - Direct method :
Fixed Power Cost allocation - $ and ratio	(15600)		900	600	300	1800
Fixed Power Costs			7800	5200	2,600	15600
Variable Power Cost and hours	(10400)		450	350	200	1000
Variable Power costs			4680	3640	2080	10400
Total Allocated Departmental Overhead costs	-		38080	30540	34780
Cost drivers:			965 MH	2000 DLH	1400 DL
Department Overhead rate			39.46	15.27	24.84
			Per MH	Per DLH	Per DLH