Koehler (see Exercise E19-15) makes handheld calculators in two models—basic and professional—and wants to refine its costing system by allocating overhead using departmental rates. The estimated \(721,000 of manufacturing overhead has been divided into two cost pools: Assembly Department and Packaging Department. The following data have been compiled:

Assembly Packaging

Department Department Total

Overhead costs \) 456,500 \( 264,500 \) 721,000

Machine hours:

Basic Model 185,000 MHr 45,000 MHr 230,000 MHr

Professional Model 230,000 MHr 55,000 MHr 285,000 MHr

Total 415,000 MH 100,000 MHr 515,000 MHr

Direct labor hours:

Basic Model 20,000 DLHr 50,000 DLHr 70,000 DLHr

Professional Model 105,125 DLHr 280,625 DLHr 385,750 DLHr

Total 125,125 DLHr 330,625 DLHr 455,750 DLHr

Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly Department and direct labor hours for the Packaging Department. How much overhead is allocated to the basic model? To the professional model? Round allocation rates to two decimal places and allocated costs to whole dollars.

Step by step solution

01

Step-by-Step-SolutionStep 1: Computation of predetermined overhead allocation rate

$\begin{array}{c}\mathrm{For}\mathrm{Assembly}\mathrm{department}=\frac{\mathrm{Total}\mathrm{Over}\mathrm{head}\mathrm{cost}\mathrm{in}\mathrm{assembling}\mathrm{department}}{\mathrm{Total}\mathrm{machine}\mathrm{hour}\mathrm{in}\mathrm{assebmling}\mathrm{department}}\\ =\frac{\mathrm{\$}456,500}{415,000}\\ =\mathrm{\$}1.1\mathrm{MHr}\end{array}$

$\begin{array}{c}\mathrm{For}\mathrm{Packaging}\mathrm{department}=\frac{\mathrm{Total}\mathrm{Overhead}\mathrm{cost}\mathrm{in}\mathrm{packaging}\mathrm{department}}{\mathrm{Total}\mathrm{direct}\mathrm{labor}\mathrm{hour}\mathrm{in}\mathrm{packaging}\mathrm{department}}\\ =\frac{\mathrm{\$}264,500}{330,625}\\ =\mathrm{\$}0.8\mathrm{DLHr}\end{array}$

02

Computation Overhead allocation of assembly department

	Predetermined overhead allocation rate	X	Actual quantity of allocation base	=	Allocated overhead cost
Basic Model	$1.1 MHr	X	185,000 MHr	=	$203,500
Professional Model	$ 1.1 MHr	X	230,000 MHr	=	$253,000
Total					$456,500

03

Computation Overhead allocation of packaging department

	Predetermined overhead allocation rate	X	Actual quantity of allocation base	=	Allocated overhead cost
Basic Model	$0.8 DLHr	X	50,000 MHr	=	$40,000
Professional Model	$ 0.8 DLHr	X	280,625 MHr	=	$224,500
Total					$264,500

04

Computation of total overhead cost for each model

	Basic Model	Packaging Model
Assembly Department	$203,500	$253,000
Packaging Department	$40,000	$224,500
Total	$243,500	$477,500

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