Question

Refer to the information in Exercise 17-4.

	Molding	Trimming
Direct labor hours.	52,000 DLH	48,000 DLH
Machine hours	30,500 MH	3,600 MH
Overhead costs	\(730,000	\)590,000

Data for two special order parts to be manufactured by the company in 2017 follow.

	Part A27C	Part X82B
Number of units	9,800 units	54,500 units
Machine hours
Molding	5,100 MH	1,020 MH
Trimming	2,600 MH	650 MH
Direct labor hours
Molding	5,500 DLH	2,150 DLH
Trimming	700 DLH	3,500 DLH

Required

1. Compute a departmental overhead rate for the molding department based on machine hours and a department overhead rate for the trimming department based on direct labor hours.
2. Determine the total overhead cost assigned to each product line using the departmental overhead rates from requirement 2.
3. Determine the overhead cost per unit for each product line using the departmental rate.

Short answer

1. The departmental overhead costs for molding and trimming are $23.93and $12.29per machine hour and direct labor, respectively.
2. Total overhead cost for part A27C and Part X82B is $130,646and $67,424.
3. Overhead cost per unit for part A27C and Part X82B is $13.33and $1.24.

Step-by-step solution

Meaning of Overhead Cost

Overhead cost is a sum of the indirect expenses which supports the business indirectly, and this cost is not directly related to the manufacturing of a product.

(1) Computing departmental overhead rate

Molding

$$\begin{gathered} \text{Departmental}\text{overhead}\text{cost}=\frac{\text{Overhead}\text{cost}}{\text{Machine}\text{hours}} \\ =\frac{\$730,000}{30,500} \\ =\$23.93\text{per}\text{machine}\text{hour} \end{gathered}$$

Trimming

$$\begin{gathered} \text{Departmental}\text{overhead}\text{cost}=\frac{\text{Overhead}\text{cost}}{\text{Direct}\text{labor}\text{hours}} \\ =\frac{\$590,000}{48,000} \\ =\$12.29\text{per direct}\text{labour} \end{gathered}$$

(2) Determining the total overhead cost

For order part A27C

Part A27C	Activity driver	Departmental OH rate	Total Overhead cost
Molding	5,100	$23.93	$122,043
Trimming	700	$12.29	8,603
Total Overhead Cost			$130,646
Units Produced			9,800

For order Part X82B

Part X82B	Activity driver	Departmental OH rate	Total Overhead cost
Molding	1,020	$23.93	$24,409
Trimming	3,500	$12.29	43,015
Total Overhead Cost			$67,424
Units Produced			54,500

(3) Determining the overhead cost per unit

Calculation of overhead cost per unit for Part A27C

$$\begin{gathered} \text{Overhead}\text{cost}\text{per}\text{unit}=\frac{\text{Total} \text{overhead}\text{cost}}{\text{Units}\text{produced}} \\ =\frac{\$130,646}{9,800} \\ =\$13.33 \end{gathered}$$

Calculation of overhead cost per unit for Part X82B

$$\begin{gathered} \text{Overhead}\text{cost}\text{per}\text{unit}=\frac{\text{Total} \text{overhead}\text{cost}}{\text{Units}\text{produced}} \\ =\frac{\$67,424}{54,500} \\ =\$1.24 \end{gathered}$$