Question

Romsen Manufacturing, Inc., a producer of precision machine parts, uses a predetermined
overhead rate to apply overhead. Overhead is applied on the basis of machine
hours in the Drilling Department and on the basis of direct hours in the Assembly
Department. At the beginning of 2006, the following estimates are provided for the
coming year:

	Drilling	Assembly
Direct Labor Hours	20,000	200,000
Machine Hours	280,000	20,000
Inspection Hours	4,000	8,000
Direct Labor Cost	$380,000	$1,800,000

Overhead Cost	$600,000	$392,000

Actual results reported for 2006 are as follows:

	Drilling	Assembly
Direct Labor Hours	42,000	196,000
Machine Hours	288,000	22,000
Inspection Hours	4,000	8,000
Direct Labor Cost	$168,000	$882,400
Overhead Cost	$602,000	$412,000

Required
1. Compute the predetermined overhead rates for each department.
2. Compute the applied overhead for the year 2006. What is the underapplied or
overapplied overhead for each department? For the firm?
3. Suppose a job used 4,000 machine hours in drilling and 1,600 direct labor hours
in assembly. If the job size is 8,000 units, what is the overhead cost per unit?

Answer 1

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Romsen
Answer 1	Drilling	Note
Machine Hours	280,000.00	A
Overhead cost	600,000.00	B
Departmental predetermined OH Rate	2.14	C=B/A
Answer 1	Assembly
Labor Hours	200,000.00	D
Overhead cost	392,000.00	E
Departmental predetermined OH Rate	1.96	F=E/D
Answer 2	Drilling
Actual Machine hours	288,000.00	G
Departmental predetermined OH Rate	2.14	See C
Overhead applied in Drilling	617,142.86	H=G%C
Answer 2	Assembly
Actual Labor hours	196,000.00	I
Departmental predetermined OH Rate	1.96	See F
Overhead applied in Assembly	384,160.00	J=I*F
Overhead applied for the firm	1,001,302.86	K=J+H
Answer 3	Drilling	Assembly	Total	Note
Machine/ Labor hour used	4,000.00	1,600.00		L
Departmental predetermined OH Rate	2.14	1.96		M= See C, F
Overhead applied to Job	8,571.43	3,136.00	11,707.43	N=L*M
Units			8,000.00	O
Overhead cost per unit			1.46	P=N/O