MumsDay Corporation manufactures a complete line of fiberglass attach cases and suitcases. MumsDay has three manufacturing departments

MumsDay Corporation manufactures a complete line of fiberglass attaché 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; and 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 Maintenance Department provide services to the three manufacturing departments.

MumsDay has always used a plant-wide overhead rate. Direct labor hours are used to assign the overhead to its product. The pre-determined rate is calculated by dividing the company’s total estimated overhead by the total estimated direct labor hours to be worked in the three manufacturing departments.

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

a. Calculate the plant-wide overhead rate for MumsDay 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 comparison with the plant-wide rate. The following steps are to be followed in developing the departmental rates.
i. The Maintenance Department costs should be allocated to the three manufacturing departments using labor hours.
ii. The fixed costs in the Power Department should be allocated to the three manufacturing departments according to long-term capacity and the variable costs according to planned usage.
iii. Calculate departmental overhead rates for the three manufacturing departments using a machine hour base for the Molding Department and a direct labor hour base for the Component and Assembly Departments.

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