Compare traditional and departmental cost allocations

Albertsons Fine Furnishings manufactures upscale custom furniture. Albertsons currently uses a plantwide overhead rate, based on direct labor hours, to allocate its $1,100,000 of manufacturing overhead to individual jobs. However, Debbie Howard, owner and CEO, is considering refining the companys costing system by using departmental overhead rates. Currently, the Machining Department incurs $740,000 of manufacturing overhead, while the Finishing Department incurs $360,000 of manufacturing overhead. Howard has identified machine hours (MH) as the primary manufacturing overhead cost driver in the Machining Department and direct labor (DL) hours as the primary cost driver in the Finishing Department.

Albertsons plant completed Jobs 450 and 455 on May 15. Both jobs incurred a total of 5 DL hours throughout the entire production process. Job 450 incurred 2 MH in the Machining Department and 4 DL hours in the Finishing Department (the other DL hour occurred in the Machining Department). Job 455 incurred 7 MH in the Machining Department and 3 DL hours in the Finishing Department (the other two DL hours occurred in the Machining Department).

Requirements

1. Compute the plantwide overhead rate, assuming Albertsons expects to incur 27,500 total DL hours during the year.