Departmental Overhead Rates

Mariposa, Inc., produces machine tools and currently uses a plantwide overhead rate, based on machine hours. Alice Chen, the plant manager, has heard that

departmental overhead rates can offer significantly better cost assignments than can a plantwide rate.

Mariposa has the following data for its two departments for the coming year:

Department A Department B

Required:

Compute a predetermined overhead rate for the plant as a whole based on machine hours.

$

per machine hour

Compute predetermined overhead rates for each department using machine hours. Round your answers to one decimal place.

Department A $

per machine hour

Department B $

per machine hour

Suppose that a machine tool $($Product X$75)$ used $70$ machine hours from Department A and $170$ machine hours from Department B$.$ A second machine tool $($Product

Y$15)$ used $170$ machine hours from Department A and $70$ machine hours from Department B$.$ Compute the overhead cost assigned to each product using the plantwide

rate computed in Requirement $1.$

Repeat the computation using the departmental rates found in Requirement $2.$ Suppose that a machine tool $($Product X$75)$ used $70$ machine hours from Department A and $170$ machine hours from Department B$.$ A second machine tool $($Product

Y$15)$ used $170$ machine hours from Department A and $70$ machine hours from Department B$.$ Compute the overhead cost assigned to each product using the plantwide

rate computed in Requirement $1.$

Repeat the computation using the departmental rates found in Requirement $2.$

Which of the two approaches gives the fairest assignment?

Repeat Requirement $3$ assuming the expected overhead cost for Department B is $$264,000.$

Would you recommend departmental rates over a plantwide rate?