Plantwide versus Departmental Overhead Rates: MumsDay Corporation manufactures a complete line of fiberglass attache cases and suitcases. MumsDay has three manufacturing departments—molding, component, and assembly—and two service departments—power and maintenance.

The sides of the cases are manufactured in the molding department. The frames, hinges, locks, etc., are manufactured in the component department. The cases are completed in the assembly department. Varying amounts of materials, time, and effort are required for each of the various cases. The power department and mainte- nance department provide services to the three manufacturing departments.

MumsDay has always used a plantwide overhead rate. Direct labor-hours are used to assign the overhead to its product. The predetermined rate is calculated by dividing the company's total estimated overhead by the total estimated direct laborhours to be worked in the three manufacturing departments.

Whit Portlock, manager of Cost Accounting, has recommended that MumsDay use departmental overhead rates. The planned operating costs and expected levels of activity for the coming year have been developed by Portlock and are presented by department in the following schedules (000 omitted).

Required:

a. Calculate the plant wide overhead rate for Mums Day Corporation for the coming year, using the same method as used in the past.

b. Whit Portlock has been asked to develop departmental overhead rates for com- parison with the plantwide rate. The following steps are to be followed in developing the departmental rates.

1. The maintenance department costs should be allocated to the three manufac- turing departments, using the direct method.

2. The power department costs should be allocated to the three manufacturing departments as follows: the fixed costs allocated according to long-term capacity and the variable costs according to planned usage.

3. Calculate departmental overhead rates for the three manufacturing depart- ments using a machine-hour base for the molding department and a direct labor-hour base for the component and assembly departments.

c. Should Mums Day Corporation use a plantwide rate or departmental rates to assign overhead to its products? Explain your answer.

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Departmental activity measures: Direct labor-hours Machine-hours Departmental costs: Raw materials Molding 500 2,000 875 125 Manufacturing Departments Component Assembly 1,500 -0- Direct labor $12,400. 3,500 $30,000 $ 1,250 20,000 12,000 Variable overhead 3,500 10,000 16,500 Fixed overhead 17,500 6,200 6,100 Total departmental costs $36,900 $66,200 $35,850 Use of service departments: Maintenance: Estimated usage in labor-hours for coming year Power (in kilowatt-hours): Estimated usage for coming year Maximum allotted capacity 90 25 10 360 500 320 120 - 350 Service Departments 150 Power Maintenance Departmental activity measures: Maximum capacity 1,000 kwhr. Adjustable Estimated usage in coming year 800 kwhr. 125 hours Departmental costs: Materials and supplies $ 5,000 $1,500 Variable labor 1,400 2,250 Fixed overhead 12,000 250 Total service department costs $18,400 $4,000