Question

Andrews Company manufactures blenders, offering its customers two model options – a basic model and a deluxe model.  Each model of blender goes through the same two-step production process – it is assembled in the Assembly Department and packaged for sale in the Packaging Department.  For the month that is about begin, Andrews Company is estimating manufacturing overhead costs of $680,000 in the Assembly Department and $270,000 in the Packaging Department.  The company also estimates the following usage of direct labor hours and machine hours for the month:

 

	Assembly Department	Packaging Department
Direct   Labor Hours	500	2,050
Machine   Hours	1,800	250

 

What is Andrews Company’s plantwide overhead allocation rate if the company uses direct labor hours as its allocation base?

 

 

 

What is Andrews Company’s plantwide overhead allocation rate if the company uses machine hours as its allocation base?

What is the departmental allocation rate for the Assembly Department if the department uses machine hours as its allocation base?

 

 

 

 

What is the departmental allocation rate for the Packaging Department if the department uses direct labor hours as its allocation base?

 

 

 

After the month was over, the company was able to provide you with the following data on actual usage and production:

 

	Basic Model	Deluxe Model	Total
Units Produced:	1,000	450	1,450
Assembly   Dept.
Direct   Labor Hrs.	200	275	475
Machine   Hrs.	800	1,100	1,900
Packaging   Dept.
Direct   Labor Hrs.	1,475	675	2,150
Machine   Hrs.	100	125	225

 

How much manufacturing overhead will be allocated to each model if the company uses a plantwide overhead allocation rate with an allocation base of direct labor hours?

 

 

 

 

 

How much manufacturing overhead will be allocated to each model if the company uses a plantwide overhead allocation rate with an allocation base of machine hours?

 

 

 

 

 

How much manufacturing overhead will be allocated to each model if the company uses departmental overhead allocation rates, with the Assembly Department using an allocation base of machine hours and the Packaging Department using an allocation base of direct labor hours?

 

Andrews Company is considering a change to activity-based costing to account for its manufacturing overhead.  Before the month began, the company’s cost accountants identified the following activities, allocation bases, estimated costs and estimated allocation base usage by model:

 

Activity	Estimated MOH Costs	Allocation Base	Basic Model	Deluxe Model	Total
Setup	$295,000	# of batches	50 batches	15 batches	65 batches
Production	$515,000	Machine hours	700 MHs	900 MHs	1,600 MHs
Testing	$140,000	# of tests	100 tests	30 tests	130 tests

 

Calculate overhead allocation rates for each of the three activities.

-          Setup

 

 

-          Production

 

 

-          Testing

 

 

 

Allocate MOH to each of the models given the following actual data provided by the company:

 

Activity	Basic Model	Deluxe Model	Total
Setup	42 batches	16 batches	58 batches
Production	680 MHs	930 MHs	1,610 MHs
Testing	84 tests	32 tests	116 tests
Units Produced:	1,000 units	450 units	1,450 units

 

MOH Allocated to the Basic Model:

 

 

 

 

 

 

MOH Allocated to the Deluxe Model:

Answer 1

The plantwide allocation rate is calculated by dividing the total overheads of the organization by the total number of hours.

Company's plantwide allocation rate on direct labor hours as the allocation base:

= ($680,000 + $270,000) / (500 + 2,050)
= $950,000 / 2,550
= $372.55 per direct labor hour

Company's plantwide allocation rate on machine hours as the allocation base:

= ($680,000 + $270,000) / (1800 + 250)
= $950,000 / 2,050
= $463.41 per direct labor hour

Departmental allocation rate for Assembly department on basis of machine hours

= $680,000 / 1,800
= $377.78

Departmental allocation rate for Packaging department on basis of direct labor hours

= $270,000 / 2,050
= $131.71

How much manufacturing overhead will be allocated to each model if the company uses a plantwide overhead allocation rate with an allocation base of direct labor hours?

Basic Model:

Total direct labor hours = 200 + 1475 = 1675 hours
Overheads allocated = 1675 hours * $372.55 = $624,021

Deluxe Model:

Total direct labor hours = 275 + 675 = 950 hours|
Overheads allocated = 950 hours * $372.55 = $353,923

How much manufacturing overhead will be allocated to each model if the company uses a plantwide overhead allocation rate with an allocation base of machine-hours?

Basic Model:

Total machine hours = 800 + 100 = 900 hours
Overheads allocated = 900 hours * $463.41 = $417,069

Deluxe Model:

Total machine hours = 1100 + 125 = 1225 hours|
Overheads allocated = 1225 hours * $463.41 = $567,677

How much manufacturing overhead will be allocated to each model if the company uses departmental overhead allocation rates, with the Assembly Department using an allocation base of machine-hours and the Packaging Department using an allocation base of direct labor hours?

Basic Model:

Assembly department:
Overheads allocated = 800 machine hours * $377.78 = $302,224

Packaging department:
Overheads allocated = 1475 direct labor hours * $131.71 = $194,272

Total Overheads = $302,224 + $194,272 = $496,496

Deluxe Model:

Assembly department:
Overheads allocated = 1100 machine hours * $377.78 = $415,558

Packaging department:
Overheads allocated = 675 direct labor hours * $131.71 = $88,904

Total Overheads = $415,558 + $88,904 = $504,462