Question

ClearCase Company manufactures display cases to be sold to retail stores. The cases come in three sizes: Large, Medium, and Small. Currently, ClearCase Company uses a single plant-wide overhead rate to allocate its $3,357,800 of annual manufacturing overhead. Of this amount, $820,000 is associated with the Large Case line, $1,276,800 is associated with the Medium Case line, and $1,261,000 is associated with the Small Case line. ClearCase Company is currently running a total of 33,000 machine hours: 10,000 in the Large Case line, 13,300 in the Medium Case line, and 9,700 in the Small Case line. ClearCase Company uses machine hours as the cost driver for manufacturing overhead costs.

a. Calculate the plant-wide manufacturing overhead rate.

b. Calculate the departmental overhead rate for each of the three departments listed.

c. Which product line(s) have been overcosted by using the plant-wide manufacturing overhead rate?

By how much per machine hour?

d. Which product line(s) have been undercosted by using the plant-wide manufacturing overhead rate?

By how much per machine hour?

Answer 1

a.plant wide

total cost / machine hours

=3357800/33000

=101.75$ per hour

b.departmental overhead rate

	large	medium	small
hours	10000	13300	9700
overhead rate	1017500[10000*101.75	1353275[13300*101.75	986975[9700*101.75]

c.actual cost

	large	medium	small
total cost a	820000	1276800	1261000
hours b	10000	13300	9700
cost per hour a/b	82$	96$	130$

c as the plantwide rate is $101.75

large and medium line have been overcosted by plantwide overhead rate

large = [101.75-82] by $19.75 per machine hour

medium= [101.75-96] by $5.75 per machine hour

d. small product lines have been under costed by plantwide rate

by $28.25 per machine hour [130-101.75]