Cornerstone Exercise 4.3 Departmental Overhead Rates

Lansing, Inc., provided the following data for its two producing departments:

Molding Polishing Total

Estimated overhead $400,000 $80,000 $480,000

Direct labor hours (expected and actual):

Form A 1,000 5,000 6,000

Form B 4,000 15,000 19,000

Total 5,000 20,000 25,000

Machine hours:

Form A 3,500 3,000 6,500

Form B 1,500 2,000 3,500

Total 5,000 5,000 10,000

Machine hours are used to assign the overhead of the Molding Department, and direct labor hours are used to assign the overhead of the Polishing Department. There are 30,000 units of Form A produced and sold and 50,000 of Form B.

Required:

1. Calculate the overhead rates for each department.

2. Using departmental rates, assign overhead to the two products and calculate the overhead cost per unit. How does this compare with the plantwide rate unit cost, using direct labor hours?

3. What if the machine hours in Molding were 1,200 for Form A and 3,800 for Form B and the direct labor hours used in Polishing were 5,000 and 15,000, respectively? Calculate the overhead cost per unit for each product using departmental rates, and compare with the plantwide rate unit costs calculated in Requirement 2. What can you conclude from this outcome?