Question

Nancy has decided to try and calculate her Manufacturing Overhead (MOH) allocation with a departmental rate rather than using a plant-wide rate. She works for Blossom, Inc., a factory that produces seashell-themed keychains. She is looking at the costs derived from the production department and the department's total budgeted costs include: Factory Utilities, $68300; Factory Supervisor Salaries, $101000; Assembly Line Worker Wages, $287000; Maintenance Wages, $32500; Seashells, $13500; Metal for Keychains, $6000; and Factory Depreciation, $56500. What is the budgeted departmental MOH rate based on Direct Labor (DL) cost?

1) $0.90
2) $11.49
3) $0.20
4) $4.13

Answer 1

The budgeted departmental MOH rate based on Direct Labor cost is calculated by summing the indirect costs and dividing by the total direct labor costs. The sum of indirect costs ($258,300) divided by direct labor costs ($287,000) equals a MOH rate of $0.90 per dollar of direct labor.

Step-by-step explanation:

The student is asking how to calculate the budgeted departmental Manufacturing Overhead (MOH) rate based on Direct Labor (DL) cost for a company that produces seashell-themed keychains. To find the departmental MOH rate, only the indirect costs associated with manufacturing (Factory Utilities, Factory Supervisor Salaries, Maintenance Wages, and Factory Depreciation) are taken into account, which sum to a total of $208,300. These costs are then divided by the direct labor costs, which are the Assembly Line Worker Wages ($287,000), to find the MOH rate per dollar of direct labor.

To calculate the rate:

• Sum the indirect costs: $68,300 (Factory Utilities) + $101,000 (Factory Supervisor Salaries) + $32,500 (Maintenance Wages) + $56,500 (Factory Depreciation) = $258,300.
• Divide this sum by the total direct labor cost of $287,000.
• The result is $258,300 / $287,000 = $0.90 per dollar of direct labor.

The budgeted departmental MOH rate is therefore $0.90 per dollar of direct labor, meaning that for every dollar spent on direct labor, an additional $0.90 is allocated for manufacturing overhead.