Question

Laval produces lamps and home lighting fixtures. Its most popular product is a brushed aluminum desk lamp. This lamp is made from components shaped in the fabricating department and assembled in the assembly department. Information related to the 25,000 desk lamps produced annually follows.

Direct materials	$	265,000
Direct labor
Fabricating department (9,500 DLH × $31 per DLH)	$	294,500
Assembly department (16,000 DLH × $23 per DLH)	$	368,000
Machine hours
Fabricating department		14,300	MH
Assembly department		21,200	MH

  
Expected overhead cost and related data for the two production departments follow.

	Fabricating			Assembly
Direct labor hours		210,000	DLH		335,000	DLH
Machine hours		159,000	MH		130,000	MH
Overhead cost	$	400,000		$	420,000

  
Required
1. Determine the plantwide overhead rate for Laval using direct labor hours as a base.
2. Determine the total manufacturing cost per unit for the aluminum 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. Use departmental overhead rates from requirement 3 to determine the total manufacturing cost per unit for the aluminum desk lamps.

Answer 1

1	Plantwide overhead rate for Laval using direct labor hours as a base :-
	Overhead Rate = (Total Overhead Cost of Fabricating and Assembly Department / Total Direct Labor Hours )
		= ($400,000 + $420,000) / (210,000 + 335,000)
		= 820,000 / 545,000
		= $1.505 per Direct Labor Hour

2	Total manufacturing cost per unit for the aluminum desk lamp using the plantwide overhead rate
		Particulars	Amount ($)
		Direct Material	265,000.00
		Direct Labor (294,500 + 368,000)	662,500.00
		Manufacturing Overhead :
		Fabricating Department (9,500 DLH × $1.505 per DLH)	14,297.50
		Assembly Department (16,000 DLH × $1.505 per DLH)	24,080.00
		Total Manufacturing Cost	965,877.50
		Number of Aluminum Desk Lamp	25,000
		Manufacturing Cost Per Unit ($965,855 / 25,000)	38.64

3	Departmental overhead rates based on machine hours in the fabricating department and direct labor hours in the assembly department
	Particulars	Fabricating Department	Assembly Department
	Overhead Cost	400,000	420,000
	Basis	MH	DLH
	Total of the Basis	159,000	335,000
	Departmental Overhead Rate	2.52	1.25

4	Determine the total manufacturing cost per unit for the aluminum desk lamps using departmental overhead rates from requirement 3
	Particulars	Amount ($)
	Direct Material	265,000.00
	Direct Labor (294,500 + 368,000)	662,500.00
	Manufacturing Overhead :
	Fabricating Department (14,300 MH × $2.52 per MH)	36,036.00
	Assembly Department (16,000 DLH × $1.25 per DLH)	20,000.00
	Total Manufacturing Cost	983,536.00
	Number of Aluminum Desk Lamp	25,000
	Manufacturing Cost Per Unit ($983,536 / 25,000)	39.34