Britton Metals Inc. has two production departments with the following characteristics:

Some of the company's products are produced exclusively in department A and others require activity only in department B. The following costs are budgeted for the month and form the basis for computing the predetermined overhead rate.
Building costs..........................................................$264,000
Power cost.................................................................40,000
Production equipment amortization..................................400,000
Total.....................................................................$704,000
Required:
1. Calculate a single predetermined overhead rate for the company, based on direct labour hours.
2. Calculate an overhead rate for each production department, based on two different cost drivers: direct labour hours in department A and machine hours in department B.
3. Explain why the two calculations would differ.

Transcribed Image Text:

Department A 80,000 Department B 80,000 80,000 232,000 $400,000 Total Direct labour hours per month Machine hours per month Floor space in square metres Production equipment depreciation Power cost 160,000 80,000 240,000 8,000 800 S 39,200