Question

Applied Overhead and Unit Overhead Cost: Plantwide Rates

Seco, Inc., produces two types of clothes dryers: deluxe and regular. Seco uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year:

Estimated overhead	$1,944,000
Expected activity	54,000
Actual activity (direct labor hours):
Deluxe dryer	15,000
Regular dryer	39,000
Units produced:
Deluxe dryer	30,000
Regular dryer	195,000

Required:

1. Calculate the predetermined plantwide overhead rate, using direct labor hours.
$ per hour

Calculate the applied overhead for each product, using direct labor hours.

	Applied overhead
Deluxe	$
Regular	$

2. Calculate the overhead cost per unit for each product. If required, round your answers to the nearest cent.

	Overhead Cost
Deluxe	$ per unit
Regular	$ per unit

3. What if the deluxe product used 30,000 hours (to produce 30,000 units) instead of 15,000 hours (total expected hours remain the same)? Calculate the effect on the profitability of this product line if all 30,000 units are sold.

Profits would __ by $ __

Answer 1

1	Predetermined plantwide overhead rate
	estimated overhead/espected activity
	$1,944,000/54,000
	$36.00
		Applied overhead
	Deluxe
	($36 x 15,000)	$540,000
	Regular
	($36 x 39,000)	$1,404,000
2
		Overhead Cost
	Deluxe
	($540,000/30,000)	$18.00
	Regular
	($1,404,000/195,000)	$7.20
3
		Applied overhead
	Deluxe
	($36 x 30,000)	$1,080,000
	profitability of this product line also decrease
	Profits would decrease by $540,000