Hydro Sports budgets overhead cost of $600,000 for the year; of this amount, $420,000 is traceable to the Assembly department and $180,000 is traceable to the Finishing department. The company manufactures two types of jet skis: standard and deluxe.

 Exercise 4-6 (Algo) Computing departmental overhead rates LO P2

Hydro Sports budgets overhead cost of $600,000 for the year; of this amount, $420,000 is traceable to the Assembly department and $180,000 is traceable to the Finishing department. The company manufactures two types of jet skis: standard and deluxe. Budgeted direct labor hours for the standard model are 6 in Assembly and 1 in Finishing. Budgeted direct labor hours for the deluxe model are 8 in Assembly and 2 in Finishing. The company budgets production of 200 units of the standard model and 200 units of the deluxe model for the year.
   
1. Compute each department’s total number of budgeted direct labor hours for the year.

2. Compute departmental overhead rates for each department using direct labor hours for that department.

Explanation

2. Departmental overhead rates

Assembly = $420,000/2,800 DLH = $150 per DLH

Finishing = $180,000/600 DLH = $300 per DLH

3. Compute overhead cost per unit for each model using departmental overhead rates. Actual direct labor hours for the standard model are 6 in Assembly and 1 in Finishing. Actual direct labor hours for the deluxe model are 8 in Assembly and 2 in Finishing.

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