Laval produces lighting fixtures. Budgeted information for its two production departments follows. The departments use machine hours (MH) and direct labor hours (DLH).

 Exercise 4-9 (Algo) Allocating overhead using plantwide rate and departmental rates LO P1, P2
Laval produces lighting fixtures. Budgeted information for its two production departments follows. The departments use machine hours (MH) and direct labor hours (DLH).
 
      Fabricating     Assembly
Overhead cost     $ 1,190,000           $ 192,000     
Direct labor hours     156,750     DLH     16,000     DLH
Machine hours     85,000     MH     66,500     MH


Laval reports the following for one of its products, a desk lamp.
 
      Number of Units     Fabricating Department     Assembly Department
Direct Labor Hours per Unit     Machine Hours per Unit     Direct Labor Hours per Unit     Machine Hours per Unit
Desk lamp     4,000     3     DLH per unit     2     MH per unit     2     DLH per unit     0.3     MH per unit


Required:
1. Determine the plantwide overhead rate using 172,750 direct labor hours as the allocation base.

Explanation

1. Budgeted overhead costs ($1,190,000 + $192,000) =  $1,382,000

2. Determine the overhead cost per unit for the desk lamp using the plantwide overhead rate.

Explanation

2. Direct Labor Hours per Unit = 3 DLHs per unit in Fabricating + 2 DLHs in Assembly = 5 DLHs per unit
$5.00 per DLH × 8 DLHs per unit = $40.00 OH cost per unit.

3. Compute departmental overhead rates based on machine hours in the Fabricating department and direct labor hours in the Assembly department.

Explanation

3. Fabricating department overhead rate = $1,190,000/85,000 MH = $14 per MH
Assembly department overhead rate = $192,000/16,000 DLHs = $12 per DLH

4. Determine the overhead cost per unit for the desk lamp using the departmental overhead rates.

 

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