Question

Overhead Applied to Jobs, Departmental Overhead Rates Xania Inc. uses a normal job-order costing system. Currently, a plantwide overhead rate based on machine hours is used. Xania’s plant manager has heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. Xania has the following data for its two departments for the coming year:

Department A Department B
Overhead costs (expected) $120,000 $80,000
Normal activity (machine hours) 16,000 5,800

Required:

a. Compute a predetermined overhead rate for the plant as a whole based on machine hours. Round your answer to two decimal places.$ per machine hour
b. Compute predetermined overhead rates for each department using machine hours. (Note: Round to two decimal places, if necessary.)

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Department A Department B

Overhead costs (expected) $120,000 $80,000

Normal activity (machine hours) 16,000 5,800

A) To calculate the plantwide overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= (120,000 + 80,000) / (16,000 + 5,800)= $9.17 per machine hour

B) We need to use the same formula, but for each department:

Department A:

Estimated manufacturing overhead rate= 120,000/16,000= $7.5 per machine hour

Department B:

Estimated manufacturing overhead rate= 80,000/5,800= $13.79 per machine hour