OBJECTIVE Exercise 4.14 Departmental Overhead Rates Mariposa, Inc., produces machine tools and currently uses a plantwide overhead rate based on duine hours. Harry Whipple, the plant manager, has heard that departmental overhead rates offer significantly better cost assignments than can a plantwide rate. Manposa has the following data for its two departments for the coming year: Department Department B Overhead costs expected) S720,000 $180.000 Normal activity (machine hours) 120,000 60,000 Required: 1. Compute a predetermined overhead rate for the plant as a whole based on machine hours. 2. Compute predetermined overhead rates for each department using machine hours. 1 Suppose that a machine tool (Product X75) used 60 machine hours from Department A and 150 machine hours from Department B. A second machine tool (Product Y15) 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 computed in Require- ment I. Repeat the computation using the departmental rates found in Requirement 2 Which of the two approaches gives the fairest assignment? Why? 4. Repeat Requirement 3 assuming the expected overhead cost for Department B is $360,000. Now would you recommend departmental rates over a plantwide rate? and