Overhead rate for Fabricating
Crane Manufacturing produces two products in its Saratoga plant, balzene and galvene. Since it opened its doors in 1965, Crane has been using a single manufacturing overhead pool to accumulate overhead costs. Overhead has been allocated to products based on direct labor hours. Until recently, Crane was the sole producer of galvene in the country and was therefore able to dictate the selling price. However, last year Marcella Products began marketing a comparable product at $57 per unit--a price that is below Crane's product cost. Crane's market share of galvene has declined rapidly as a result. The company's managers must now decide whether to meet the competitive price or discontinue the product. Crane's cost accountant has suggested that the company do an activity-based cost analysis before managers make the decision. The two main indirect costs of manufacturing balzene and galvene are power usage and setup costs. Most of the power usage occurs in the fabricating department; most of the setup costs are incurred in the assembly department. Setup costs are incurred predominantly in the production of balzene. The fabricating department has identified machine hours as the appropriate cost driver, the assembly department has identified setups as the appropriate cost driver. Direct labor rates are the same in both departments The combined budget for manufacturing is as follows. Total Balzene 4,000 4 hours per unit $5.00 per unit Galvene 4,000 8 hours per unit $4 per unit $1,080,000 Number of units Direct labor Direct material Overhead Indirect labor Fringe benefits Indirect materials Power Setup Quality assurance Other utilities Depreciation $50,000 18,000 31,000 180,000 90,000 25.000 20,000 30,000 The cost accountant has prepared the following estimates of overhead usage by the two departments: Indirect labor Fringe benefits Indirect materials Power Fabricating 75% 70% $20,000 $100,650 $20,000 65% 60% 80% Assembly 25% 30% $11,000 $79,350 $70,000 35% 40% 20% Setup Quality assurance Other utilities Depreciation Activity Base Usage Balzene Galvene Machine Hours 4 MH/unit 6 MH/unit Setups 1,000 250 (a) Your answer is correct Calculate the unit costs of balzene and galvene using the current overhead allocation basis of direct labor hours. (Round overhead rate and final answers to 2 decimal places, eg. 15.25.) Balzene Galvene Cost per unit 132 $ 258 Calculate the amount of overhead cost assigned to the Fabricating and Assembly activity cost pools using the cost accountant's estimates. Determine the overhead rate for each cost pool. (Round overhead rate answers to 3 decimal places, e.g. 15.215.) Fabricating Assembly 243,000 $ 201.000 Overhead cost assigned Overhead rate VMH $ 160.80/setup eTextbook and Media Assistance Used Save for Later Attempts: 2 of 3 used Submit
