Hobart Company manufactures attach cases and suitcases. It has five manufacturing departments. The Molding, Component, and Assembly departments convert raw materials into finished goods; hence, they are treated as operating departments. The Power and Maintenance departments are treated as service departments because they support the three operating departments. Hobart has always used a plantwide predetermined overhead rate with direct labor-hours as the allocation base for product costing purposes. The overhead rate is computed by dividing the companys total estimated overhead cost (across the five manufacturing departments) by the total estimated direct labor-hours to be worked in the three operating departments. The company has been experiencing declining profits; therefore, it is considering switching from plantwide overhead allocation to a departmental approach. Under the departmental approach, the service department costs would be allocated to the three operating departments. Then each operating department would compute its own overhead rate. The overhead rate in Molding would be based on machine-hours and the rates in Component and Assembly would be based on direct labor-hours. The service departments estimated costs for the coming year are as follows:

	Service Departments
	Power			Maintenance
Variable overhead cost	$	640,000		$	25,000
Fixed overhead cost		1,200,000			375,000
Total overhead cost	$	1,840,000		$	400,000

The Power Department would allocate its variable costs to the operating departments based on estimated kilowatt hours used and it would allocate its fixed costs based on the percentage of peak-period capacity required. The Maintenance Department would allocate its variable costs to the operating departments based on estimated maintenance hours used and it would allocate its fixed costs based on the percentage of peak-period capacity required. The corresponding data for allocating service department costs to operating departments are as follows:

	Operating Departments
	Molding		Component		Assembly
Power department:
Estimated kilowatt hours used	36,000		32,000		12,000
Percentage of peak-period capacity	50	%	35	%	15	%
Maintenance Department:
Estimated maintenance hours used	9,000		2,500		1,000
Percentage of peak-period capacity	70	%	20	%	10	%

The company also provided the following estimated data for its three operating departments:

	Operating Departments
	Molding			Component			Assembly
Departmental costs:
Direct materials	$	1,630,000		$	3,000,000		$	25,000
Direct labor		350,000			2,000,000			1,300,000
Manufacturing overhead		1,960,500			1,620,000			2,399,500
Total departmental costs	$	3,940,500		$	6,620,000		$	3,724,500
Allocation bases:
Direct labor-hours		50,000			200,000			150,000
Machine-hours		87,500			12,500			0

1. Compute the companys predetermined plantwide overhead rate.

2. Assume the company decides to use departmental overhead rates.

a. Using the direct method, allocate the variable and fixed service department costs to the operating departments.

b. Calculate the predetermined departmental overhead rates for each of the three operating departments.

3. One of Hobarts products is a small attach case that uses the following machine-hours and direct labor-hours in the three operating departments:

		Machine-Hours				Direct Labor-Hours
Molding Department		3,000				1,000
Component Department		800				2,500
Assembly Department		0				4,000
Total hours		3,800				7,500

a. Calculate the amount of overhead that would be applied to this attach case using the plantwide approach.

b. Calculate the amount of overhead that would be applied to this attach case using the departmental approach.

4a. Is the plantwide approach overcosting or undercosting the attach case compared to the departmental approach?