Goshen Research Laboratories performs contract research for government and commercial applications. It is located in the Salt Lake Valley where it has access to a labor market with advanced scientific and engineering degrees. Utah has several major universities graduating people who want to pursue careers while remaining in Utah. The company consists of six divisions with appropriate support and ancillary facilities. Each division is housed in its own building within the industrial complex.

The company bills its customers based on costs of research work. Costs included are for direct equipment, direct labor hours, and overhead. The current overhead rate used for billing purposes is the facility-wide rate of $31.25 per hour for this year. The overhead costs and labor hours by division are as follows:

Several customers, particularly government agencies, question the overhead rate because it is too high for their projects.

Required:
1. Calculate overhead rates for the overall facility and for each of the six divisions.
2. Show how much overhead would be charged to each of the following projects with a facility-wide overhead rate and then with divisional rates:

(a) Project #96106: Soil Conservation of Semi-Arid Lands. (Funded by the U.S.
Department of the Interior.) During 1996, this project had 31,400 hours of work recorded. Sixty percent of those hours were from the Thermal Division, and 40 percent were from the Solar Division.

(b) Project #96111: Coal Gasification Project. Funded 30 percent by the State of Utah, 50 percent by the U.S. Department of Energy, and 20 percent by a private utilities company.) This project absorbed 47,500 hours, of which 23,200 were in the Laser Division and the remaining hours in the Mechanical Division.
3. Which of these two project sponsor groups would have a more legitimate complaint about the overhead rate? Explain.

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Thermal Solar Aquatic. Laser Gases Mechanical Totals Overhead Labor Hours (in Thousands) (in Thousands) $ 3,760 160 13,120 800 2,975 170 113,400 2,250 16,471 910 37,290 1,695 $187,016 5,985