GOALS AND OBJECTIVES To understand the drawbacks of using single unit based drivers for allocating overhead To understand how departmental overhead rates can help in terms of improving the accuracy of overhead application To illustrate the types of situation where departmental overhead rates might be helpful To understand the computations involved with departmental overhead application IDAHO CORPORATION produces widgets and currently uses a plantwide overhead rate, based on machine hours Markoff, the plant manager, has heard about departmental overhead application rates in his cost accounting class and feels that these rates can offer significantly better cost assignments than can a plantwide rate They have the following data for its two departments for the coming year Dept A Dept B Budgeted overhead costs $720,000 $180,000 Normal activity (machine hours) 120,000 60,000 REQUIRED What is meant by normal activity Why would they consider choosing this to use this as their denominator application rate What advantages and disadvantages would there be Whats the difference between a plantwide rate and a departmental rate Conceptually, why would a departmental be better Compute a predetermined overhead rate for the plant as a whole based on machine hours Compute predetermined overhead rates for each department using machine hours Suppose that a widget (Product Alpha) used 60 machine hours from Department A and 150 machine hours from Department B A second widget (Product Beta) used 150 machine hours from Department A and 60 machine hours from Department B Compute the overhead cost assigned to each product using the plantwide rate, and the departmental rates Which of the two approaches gives the fairest assignment WHY NOW ASSUME that the expected overhead cost for Department B is $360,000 How much overhead would be assigned to each product using the plantwide rate, and the departmental rates Explain WHY your answers came out the way they did NOW would you recommend departmental rates over a plantwide rate

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 30, 2024

GOALS AND OBJECTIVES To understand the drawbacks of using single unit-based drivers for allocating overhead. To understand how departmental overhead rates can help in terms

GOALS AND OBJECTIVES

To understand the drawbacks of using single unit-based drivers for allocating overhead.
To understand how departmental overhead rates can help in terms of improving the accuracy of overhead application
To illustrate the types of situation where departmental overhead rates might be helpful
To understand the computations involved with departmental overhead application

IDAHO CORPORATION

.. produces widgets and currently uses a plantwide overhead rate, based on machine hours. Markoff, the plant manager, has heard about departmental overhead application rates in his cost accounting class and feels that these rates can offer significantly better cost assignments than can a plantwide rate.

They have the following data for its two departments for the coming year:

		Dept A	Dept B
Budgeted overhead costs		$720,000	$180,000
Normal activity (machine hours)	120,000	60,000

REQUIRED:

What is meant by normal activity? Why would they consider choosing this to use this as their denominator application rate? What advantages and disadvantages would there be?

Whats the difference between a plantwide rate and a departmental rate? Conceptually, why would a departmental be better?

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

Compute predetermined overhead rates for each department using machine hours.

Suppose that a widget (Product Alpha) used 60 machine hours from Department A and 150 machine hours from Department B. A second widget (Product Beta) used 150 machine hours from Department A and 60 machine hours from Department B:

Compute the overhead cost assigned to each product using: the plantwide rate, and the departmental rates.

Which of the two approaches gives the fairest assignment? WHY?

NOW ASSUME that the expected overhead cost for Department B is $360,000. How much overhead would be assigned to each product using the plantwide rate, and the departmental rates Explain WHY your answers came out the way they did?