Wilmington Company has two manufacturing departments--Assembly and Fabrication.

Question

Wilmington Company has two manufacturing departments--Assembly and Fabrication. It considers all of its manufacturing overhead costs to be fixed costs. The first set of data that is shown below is based on estimates from the beginning of the year. The second set of data relates to one particular job completed during the year--Job Bravo.

Required:

1. Assume Wilmington uses a plantwide predetermined overhead rate based on direct labor-hours. Calculate the predetermined overhead rate and the amount of manufacturing overhead applied to Job Bravo.

2. Assume Wilmington uses departmental predetermined overhead rates with direct labor-hours as the allocation base in Assembly and machine-hours as the allocation base in Fabrication. Calculate the predetermined overhead rate for each department and the manufacturing overhead applied to Job Bravo using departmental rates.

(Round your intermediate calculation to 2 decimal places.)

3. Do you recommend that Wilmington use a plantwide overhead rate or departmental overhead rates? Why?

Estimated Data Assembly Fabrication Total Manufacturing overhead costs $ 4,370,000 $ 4,830,000 $ 9,200,000 Direct labor-hours 115,000 69,000 184,000 Machine-hours 46,000 230,000 276,000

Explanation / Answer

Estimated Data Assembly Fabrication Total Manufacturing overhead costs 4370000 4830000 9200000 Direct labor-hours 115000 69000 184000 Machine-hours 46000 230000 276000 Job Bravo Assembly Fabrication Total Direct labor-hours 24 16 40 Machine-hours 16 19 35 1 Manufacturing overhead costs 9200000 Direct labor-hours 184000 Predetermined OH Rate 50.00 Per DLH Allocation to Job Bravo: Direct labor-hours 40.00 Predetermined OH Rate 50.00 Allocated Manufacturing OH 2000 2 Assembly Fabrication Basis of Allocation DLH MH Manufacturing overhead costs 4370000 4830000 Direct labor-hours 115000 Machine-hours 230000 Predetermined OH Rate 38.00 21.00 Estimated OH for the Dept/Estimated Activity for the Dep Per DLH Per MH Allocation to Job Bravo: Assembly Fabrication DLH 24.00 Department OH Rate* Actual Activity MH 19.00 Allocated Manufacturing OH 912 399 Total Allocation 1311 3 Wilmington should use Departmental OH Rate; Since complete infromation about the Break up of allocation base is available Going by Departmental OH Allocation method; More precise allocation will be done Estimated Data Assembly Fabrication Total Manufacturing overhead costs 4370000 4830000 9200000 Direct labor-hours 115000 69000 184000 Machine-hours 46000 230000 276000 Job Bravo Assembly Fabrication Total Direct labor-hours 24 16 40 Machine-hours 16 19 35 1 Manufacturing overhead costs 9200000 Direct labor-hours 184000 Predetermined OH Rate 50.00 Per DLH Allocation to Job Bravo: Direct labor-hours 40.00 Predetermined OH Rate 50.00 Allocated Manufacturing OH 2000 2 Assembly Fabrication Basis of Allocation DLH MH Manufacturing overhead costs 4370000 4830000 Direct labor-hours 115000 Machine-hours 230000 Predetermined OH Rate 38.00 21.00 Estimated OH for the Dept/Estimated Activity for the Dep Per DLH Per MH Allocation to Job Bravo: Assembly Fabrication DLH 24.00 Department OH Rate* Actual Activity MH 19.00 Allocated Manufacturing OH 912 399 Total Allocation 1311 3 Wilmington should use Departmental OH Rate; Since complete infromation about the Break up of allocation base is available Going by Departmental OH Allocation method; More precise allocation will be done

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