4-41 PLANTWIDE vs. DEPARTMENTAL OVERHEAD RATE. Adams Corporation manufactures auto steering systems. Cost estimates for one unit of the product for the year 2013 follow:

____________________________________ Direct materials $200 Direct labor ($12/hour) 240 Machine-hours 20 ____________________________________

This product requires 12 hours of direct labor in department A and 8 hours in department B. Also, it requires 5 machine-hours in department A and 15 machine-hours in department B. The factory overhead costs estimated in these two departments follow:

____________________________________

________________________A___________B_

Variable Cost $146,000 $77,000 Fixed Cost $ 94,000 163,000 ______________________________________

Management expects the firm to produce units during 2013.

Please answer:

1) Assume that factory overhead was applied on the basis of direct labor-hours. Compute the pre-determined factory overhead rate. 2) If factory overhead were applied on the basis of machine-hours, what would be the plantwide overhead rate? 3) If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2? 4) If you were asked to evaluate the performance of each department manager, which allocation basis (cost driver) would you use? Why? 5) Compute the departmental overhead rates for each department.