Montana Metal Works has two departments: Fabrication and Finishing. Three workers oversee the 25 machines in Fabrication. Finishing uses 35 crafters to hand-polish output, which is then run through buffing machines. Product CG9832-09 uses the following amounts of direct labor and machine time in each department:

Following are the budgeted overhead costs and volumes for each department for the upcoming year:

a. What is the plantwide OH rate based on machine hours for the upcoming year? How much overhead will be assigned to each unit of Product CG9832-09 using this rate?
b. The company’s auditors inform management that departmental predetermined OH rates using machine hours in Fabrication and direct labor hours in Finishing would be more appropriate than a plantwide rate. Calculate departmental overhead rates for each department. How much overhead would have been assigned to each unit of Product CG9832-09 using departmental rates?
c. Discuss why departmental rates are more appropriate than plantwide rates for Montana MetalWorks.

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Machine hours Direct labor hours Fabrication 10.00 0.02 Finishing 0.30 2.00 Fabrication Finishing Budgeted overhead Budgeted machine hours Budgeted direct labor hours S635,340 324,000 9,300 48,000 72,000 4,800