Problem 17-28 Service Department Cost Allocation; Plantwide versus Departmental Overhead Rates; Cost Drivers (LO 17-1, 17-2, 17-3)

Travelcraft Company manufactures a complete line of fiberglass suitcases and attach cases. The firm has three manufacturing departments: Molding, Component, and Assembly. There are also two service departments: Power and Maintenance. The sides of the cases are manufactured in the Molding Department. The frames, hinges, and locks are manufactured in the Component Department. The cases are completed in the Assembly Department. Varying amounts of materials, time, and effort are required for each of the cases. The Power Department and Maintenance Department provide services to the three manufacturing departments. Travelcraft has always used a plantwide overhead rate. Direct-labor hours are used to assign overhead to products. The predetermined overhead rate is calculated by dividing the companys total estimated overhead by the total estimated direct-labor hours to be worked in the three manufacturing departments. Karen Mason, director of cost management, has recommended that Travelcraft use departmental overhead rates. The planned operating costs and expected levels of activity for the coming year have been developed by Mason and are presented by department in the following schedules. (All numbers are in thousands.)

	Service Departments
	Power						Maintenance
Departmental activity measures:
Maximum capacity		1,250		kilowatt hours			Adjustable
Estimated usage for the coming year		1,000		kilowatt hours			100		hours
Departmental costs:
Materials and supplies			$	7,000				$	1,300
Variable labor				1,800					2,460
Fixed overhead				16,550					240
Total service department costs			$	25,350				$	4,000

	Manufacturing Departments
	Molding				Component				Assembly
Department activity measures:
Direct-labor hours		500				2,600				1,900
Machine hours		935				100				0
Departmental costs:
Direct material	$	12,600			$	32,000			$	1,250
Direct labor		3,700				22,000				12,000
Variable overhead		3,200				12,000				16,800
Fixed overhead		19,100				6,200				6,100
Total departmental costs	$	38,600			$	72,200			$	36,150
Use of service departments:
Maintenance:
Estimated usage in labor hours for the coming year		70				20				10
Power (in kilowatt-hours):
Estimated usage for the coming year		400				300				300
Maximum allotted capacity		600				350				300

Problem 17-28 Part 2

2. Karen Mason has been asked to develop departmental overhead rates for comparison with the plantwide rate. The following steps are to be followed in developing the departmental rates. a. The Maintenance Department costs should be allocated to the three manufacturing departments using the direct method. b. The Power Department costs should be allocated to the three manufacturing departments using dual cost allocation combined with the direct method of service department cost allocation. Fixed costs are to be allocated according to maximum allotted capacity, and variable costs are to be allocated according to planned usage for the coming year. c. Calculate departmental overhead rates for the three manufacturing departments using a machine-hour cost driver for the Molding Department and a direct-labor-hour cost driver for the Component and Assembly departments. (Do not round intermediate calculations. Enter all your answers in thousands except "Departmental overhead rate" which should be entered in dollars rounded to 2 decimal places.)

		Molding		Component		Assembly
	Departmental overhead costs
a.	Allocation of maintenance costs (direct method)
b.	Allocation of power costs (dual, direct method)
	Fixed costs
	Variable costs
	Total allocated departmental overhead costs
c.	Cost driver		MH		DLH		DLH
	Departmental overhead rate		per MH		per DLH		per DLH