Question

Frogs, Inc. Part #2
Using Departmental Overhead Rates

Goal:
To compare plantwide and departmental overhead allocation methods.

Information:
Frogs, Inc. computes manufacturing overhead using either direct labor hours or direct material dollars so the owners decided to reject the parking lot project at this time. However, based on your training and education, you are sure that the company has made a mistake and should have accepted the new job.

You have decided to explain the benefits of switching to the departmental method using separate rates for all four departments using last year’s data and comparing these cost analysis with the plantwide rates already shown. You want to explain the benefits of accepting this new job to the owners.

The following table represents information about the four departments’ numbers from last year: Department Information

	Concrete Casting	Design Department	Engineering	Owners
Projects per year	1,000 frog statues	200	200	200
Direct materials	$62,000	$10,000	$900,000	$1,000
Direct Labor Costs	5 Casters $208,000	6 Designers $436,800	3 Sr. and 5 Jr. $447,200	2 Owners $187,200
Direct Labor Hours	10,400	12,480	16,640	4,160
Totals for the year	$270,000	$446,800	$1,377,200	$188,200

All projects use both the Design Department and the Engineering Departments in addition to the Concrete Casting Department and the Owner’s work. All employees including the owners work the standard 2,080 hours each year. The total direct labor hours for the year are 43,680.

Frogs, Inc. Page 5 of 13

	Design Department	Engineering Department	Concrete Casting	Owners
Overhead Costs
Setup Costs	$20,000	$60,000	$10,000	$3,000
Utilities	$10,000	$15,000	$5,000	$3,000
Equipment Fees	$0	$100,000	$5,000	$5,000
Permits	$5,000	$5,000	$0	$5,000
Travel to job site	$5,000	$20,000	$3,000	$5,000
Total	$40,000	$200,000	$23,000	$21,000

Required:

1 Compare and contrast the plantwide method with the departmental method of computing manufacturing overhead rates.

2 Compute the overhead cost per unit using direct labor hours as the plantwide cost driver.

3 Compute the overhead cost per unit using the departmental method. Use the projects per year as the cost driver for the Design Department and the Owners. Use the number of

concrete frogs made for the Concrete Casting Department and the direct labor hours for

the Engineering Department. You will have 4 department rates.

4 Using your department rates for each department computed in question 3 and the DM and

DL costs computed in Part 1, calculate the total cost of the project.

5 Now, compute the overhead rates using the POHR for direct material dollars used ($0.70)

for Concrete Casting. Compute the POHR’s for the Design Department, the Engineering

Department, and the Owners using direct labor hours as the cost driver.

6 Using your department rates for each department computed in question 5 and the costs

computed in Part 1, calculate the total cost of the project.

7 What cost drivers do you think best represent the most accurate overhead rates for this

job? Explain your answers for all 4 departments.

8 At this point, would you accept or reject the job after using this new information?

Answer 1

1.00	Plantwide method:-	1.in plantwide method , we use singal rate of Absorption.
		2. in this Method, we cant identify Normal & abnormal loss Deptt Wise
		3. we just Aggregate all Costing of Deptt And then Divide it by Single Unit of Absorption
		4. Hence Can say that single Unit is used for Absorption.
	Departmental Method:-	1.In this Method, we use Multiple Rate of Absorption.
		2. in this Method, we can identify Normal & abnormal loss Deptt Wise
		3. we just Aggregate all Costing of Deptt And then Divide it by Multiple Unit of Absorption
		4. Hence Can say that Multiple Unit is used for Absorption.
		5. this is most effective method of Cost Allocation
2.00	Plantwide Overhead Rate:-
		Concrete Casting	Design deptt	Engineering	Owner	Total Cost
	Total Overhead Cost (A)	23,000.00	40,000.00	200,000.00	21,000.00	284,000.00
	Total Labour Hrs (B)	10,400.00	12,480.00	16,640.00	4,160.00	43,680.00
			Departmental Rate Per Hrs			6.50	per Labour Hrs
			(A/B)
3.00	Departmental Overhead Rate:-
		Concrete Casting	Design deptt	Engineering	Owner
	Method/Unit Of Absorption	No of Frog	Project per year	Labour Hrs	Project per year
	Total Overhead Cost (A)	23,000.00	40,000.00	200,000.00	21,000.00
	Total no of Absorbing Unit (B)	1000 frog	200.00	16,640.00	200.00
	hence Deptt Overhead rate	23	200.00	12.02	105
	(A/B)	per frog	per project per year	per Labour Hrs	Per Project per Year
4.00	Total cost of Project:-
		Departmental wide				Total Cost of Project
		Concrete Casting	Design deptt	Engineering	Owner
	Direct Material	62,000.00	10,000.00	900,000.00	1,000.00
	Direct labour	208,000.00	436,800.00	447,200.00	187,200.00
	Overhead Cost	23,000.00	40,000.00	200,000.00	21,000.00
	(Using part 2 & 3)	293,000.00	486,800.00	1,547,200.00	209,200.00	2,536,200.00
7.00	Name of Department	Appropriate OH Rate Mathod
	Concrete Casting	Frog Basis
	Design Depptt	project per Year
	Engineering	project per Year
	Owner	Hrs Basis