Question

Rafner Manufacturing identified the following budgeted data in its two production departments.

	Assembly			Finishing
Manufacturing overhead costs	$	1,218,700		$	620,000
Direct labor hours		12,200	DLH		20,200	DLH
Machine hours		6,200	MH		16,200	MH

Required:

	1. What is the company’s single plantwide overhead rate based on direct labor hours? 2. What is the company’s single plantwide overhead rate based on machine hours?

  

Answer 1

Ans:

1. calculating plant wide overhead rate based on labour hours:

Manufacturing overhead cost = 12,18,700+6,20,000 = 18,38,700

Total labour hours = 12,200+20,200 = 32,400

Overhead rate = Manufacturing overhead/direct labour hours

=18,38,700/32,400 = 56.75

Overhead rate based on direct labour hours is 56.75.

2. calculating overhead rate based on machine hours:

Total machine hours = 6,200+16,200 = 22,400 hrs.

Overhead rate = Manufacturing overhead cost/ machine hrs

= 18,38,700/22,400 = 82.08

Overhead rate based on machine hours is 82.08

Note: In the given question there are two production departments viz: Assembly and finishing. In order to calculate plant wide overhead rate, total manufacturing overhead cost is taken into consideration. But incase of calculating departmental overhead rate, the manufacturing overhead cost and labour hrs or machine hrs relating to that particular department is only taken into consideration for computing overhead rate.