Question

Rafner Manufacturing identified the following budgeted data in its two production departments.

	Assembly	Finishing
Manufacturing overhead costs	\(1,200,000	\)600,000
Direct labor hours .	12,000 DLH	20,000 DLH
Machine hours	6,000 MH	16,000 MH

1. What is the company’s single plantwide overhead rate based on direct labor hours?
2. What is the company’s single plantwide overhead rate based on machine hours? (Round your answer to two decimal places.)

Short answer

1. The Plantwide overhead rate based on labor is $56.25 DLH
2. The Plantwide overhead rate based on machine hours is $81.81MH

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Overhead Cost

Overhead costs are the cost that includes all the indirect expenses like indirect material and indirect labor. It is not directly linked with producing a product but is related to running the business.

(a) Calculation of plant-wide overhead rate based on direct labor hours

$\begin{array}{rcl}\text{Plantwide}\text{overhead}\text{rate}& =& \frac{\text{Total}\text{budgeted}\text{overhead}\text{costs}}{\text{Direct}\text{labor}\text{hours}}\\ & =& \frac{\$1,200,000+\$600,000}{12,000+20,000}\\ & =& \$56.25\text{DLH}\end{array}$

(b) Calculation of plant-wide overhead rate based on machine hours

$\begin{array}{rcl}\text{Plantwide}\text{overhead}\text{rate}& =& \frac{\text{Total}\text{budgeted}\text{overhead}\text{costs}}{\text{Machine} \text{hours}}\\ & =& \frac{\$1,200,000+\$600,000}{6,000+16,000}\\ & =& \$81.81\text{MH}\end{array}$