Ryan Corporation manufactures auto steering systems. Prime cost and machine time estimates for one unit of the product for the year follow:
Direct materials$ 370
Direct labor ($29/hour)$ 725
Machine hours20
This product requires 15 hours of direct labor in Department A and 10 hours in Department B. Also, it requires 5 machine hours in Department A and 15 machine hours in Department B.
Using output as the activity, the factory overhead costs estimated in these two departments follow:
A B
Variable cost $ 405,000 $ 250,000
Fixed cost 111,000 180,000
Management expects the firm to produce 1,000 units during the year.
Required:
Problem 1. Assume the total actual overhead base used was equal to the estimated base for the 1,000 units produced. Assume that factory overhead was applied on the basis of direct labor hours. Compute the predetermined plantwide factory overhead rate.
Problem 2. If factory overhead were applied on the basis of machine hours, what would be the plantwide overhead rate?
Problem 3. If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2?
Problem 4. Compute the departmental overhead rate and amount of applied overhead for Department A using direct labor hours as the allocation base and for Department B using machine hours as the allocation base.