Question

Jardine Ltd is developing factory overhead rates for the coming year. Budgeted overhead costs for the five factory departments are as follows:

	Cost ($)		Cost Driver
Milling	79,500		Machine hours
Finishing	84,600		Direct labour hours
Maintenance	40,500		Repair hours
Factory storeroom	52,800		Requisitions
Factory office	37,800		No. of employees
Total	$295,200

Estimated operating statistics for the coming year are:

Departments	Repair hours	No. of Requisitions	No. of employees	Machine hours	Direct labour Hours
Production:
Milling	5,000	420	10	7,500	12,750
Finishing	2,500	240	8	4,000	11,250
Support:
Maintenance	400	80	2
Factory storeroom	600	40	2
Factory office	200	40	2
Total	8,700	820	24	11,500	24,000

Required:

( a )   Calculate a plant-wide overhead rate based on direct labour hours.

( b )      Calculate departmental overhead rates assuming the support departments' costs are allocated using the direct method.

Answer 1

Solution a:

Total budgeted overheads = $295,200

Budgeted direct labor hours = 24000

Plant-wide overhead rate based on direct labor hours = Budgeted overhead / Budgeted direct labor hours

= $295,200 / 24000 = $12.30 per direct labor hour

Solution b:

From	Service Department Cost Allocation - Direct Method
	Support Department			Production Department
	Maintenance	Factory Store room	Factory Office	Milling	Finishing
Direct charges of department	$40,500.00	$52,800.00	$37,800.00	$79,500.00	$84,600.00
Maintenance (50:25)	-$40,500.00			$27,000.00	$13,500.00
Factory store room (42:24)		-$52,800.00		$33,600.00	$19,200.00
Factory office (10:8)			-$37,800.00	$21,000.00	$16,800.00
Total	$0.00		$0.00	$161,100.00	$134,100.00

Computation of departmental overhead rate
Particulars	Milling	Finishing
Overhead cost of deparment	$161,100.00	$134,100.00
Allocation base	MH	DLH
Total machine hours	7500
Total direct labor hours		11250
Overhead rate of department	$21.48	$11.92