MumsDay Corporation manufactures a complete line of fiberglass attache cases and suitcases. MumsDay has three manufacturing departments (molding, component, and assembly) and two service departments (power and maintenance).
The sides of the cases are manufactured in the molding department. The frames, hinges, locks, and so on 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 type of case. The power department and maintenance department provide services to the three manufacturing departments. MumsDay has always used a plantwide overhead rate. Direct labor hours are used to assign overhead to products. Management calculates the predetermined rate by dividing the company’s total estimated overhead by the total estimated direct labor hours to be worked in the three manufacturing departments.
Whit Portlock, manager of cost accounting, has recommended that MumsDay use departmental overhead rates. He developed the planned operating costs and expected levels of activity for the coming year, presented by department in the following schedules:
Manufacturing Departments (000s)
| Molding | Component | Assembly | |
| Departmental activity measures | |||
| Direct labor hours | 500 | 2,000 | 1,500 |
| Machine hours | 875 | 125 | 0 |
| Departmental costs | |||
| Raw materials | $12,400 | $30,000 | $ 1,250 |
| Direct labor | 3,500 | 20,000 | 12,000 |
| Variable overhead | 3,500 | 10,000 | 16,500 |
| Fixed overhead | 17,500 | 6,200 | 6,100 |
| Total departmental costs | $36,900 | $66,200 | $35,850 |
| Use of service departments | |||
| Maintenance | |||
| Estimated usage in labor hours for | |||
| coming year | 90 | 25 | 10 |
| Power (in kilowatt-hours) | |||
| Estimated usage for coming year | 360 | 320 | 120 |
| Maximum allotted long-term capacity | |||
| (in kilowatt-hours) | 500 | 350 | 150 |
| Service Departments | |||
| Power | Maintenance | ||
| Departmental activity measures | |||
| Maximum capacity | 1,000 kwh | Adjustable | |
| Estimated usage in coming year | 800 kwh | 125 hours | |
| Departmental costs | |||
| Materials and supplies | $ 5,000 | $1,500 | |
| Variable labor | 1,400 | 2,250 | |
| Fixed overhead | 12,000 | 250 | |
| Total service department costs | $18,400 | $4,000 |
Required:
a. Calculate the plantwide overhead rate for MumsDay Corp. for the coming year using the same method as used in the past.
b. Whit Portlock has been asked to develop departmental overhead rates for comparison with the plantwide rate.
(i) Allocate maintenance department costs to the three manufacturing departments using labor hours.
(ii) Allocate the fixed costs in the power department to the three manufacturing departments according to long-term capacity and the variable costs according to planned usage.
(iii) Calculate departmental overhead rates for the three manufacturing departments using a machine-hour base for the molding department and a direct-labor-hour base for the component and assembly departments.
c. Should MumsDay use a plantwide rate or departmental rates to assign overhead to its products? Explain your answer.
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