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

 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    $ 300,000         $ 200,000    
Direct labor hours    75,000    DLH    125,000    DLH
Machine hours    80,000    MH    62,500    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    4    DLH per unit    3    MH per unit    2    DLH per unit    0.5    MH per unit

Required:
1. Determine the plantwide overhead rate using 200,000 direct labor hours as the allocation base.

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

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

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

 

Explanation
1.
Budgeted overhead costs ($300,000 + $200,000) = $500,000

2.
Direct Labor Hours per Unit = 4 DLHs per unit in Fabricating + 2 DLHs per unit in Assembly = 6 DLHs per unit
$6.00 per DLH × 2.50 DLHs per unit = $15 OH cost per unit.

3.
Fabricating department overhead rate = $300,000/80,000 MH = $3.75 per MH
Assembly department overhead rate = $200,000/125,000 DLHs = $1.60 per DLH

Thanks