Activity 1 Harrisons Ltd produces two types of computer printers, a laser model

Question

Activity 1

Harrisons Ltd produces two types of computer printers, a laser model and an inkjet model, which pass through two production departments, Fabrication and Assembly. The following data relate to the year just ended:

Fabrication Assembly

Budgeted overhead

       $180 000           $90 000

Expected activity (in direct labour hours)

             15 000             60 000

Expected activity (in machine hours)

             30 000               8 250

Actual overhead costs for the year were $300 000.

Laser

Inkjet

Units produced

7 500

75 000

Prime costs (material and labour)

$60 000

$450 000

Direct labour hours used:

§ Fabrication

1 000

14 000

§ Assembly

20 000

48 000

Machine hours used:

§ Fabrication

10 000

20 000

§ Assembly

1 000

8 000

Note: The actual overhead of $300 000 is for the whole plant (that is, Fabrication plus Assembly Departments).

Part 1 Calculate predetermined plantwide overhead rate based on direct labour hours.

Part 2 calculate unit cost of laser and inkjet printer (based on a plantwide overhead rate assuming DLH is the cost driver).

Part 3 calculate predetermined departmental overhead rates Cost drivers:

Machine hours: Fabrication    

Direct labour hour: Assembly

Part 4 Unit cost based on departmental overhead rates.

Part 5 estimate the amount of underapplied or overapplied overhead using:

Plantwide overhead rate:

Departmental overhead rates:

Part 6 Which approach is better for Harrisons?

Activity 2

Statewide Bank has two support departments: the HR Department and the Computing Department. Two service departments: Deposits and Loans. The usage of the two support departments’ output in the year as follows:

  

Provider

of service

User of service

HR

             Computin g

§ HR

0

          20%

§ Computing

20%

             0

§ Deposits

50%

          60%

§ Loans

30%

          20%

The budgeted costs in the two support departments for the year were:

HR                                     $360 000

Computing                         $600 000

Required

Allocate the support departments’ costs to production departments using direct method, step-down method and reciprocal method.

Fabrication Assembly

Budgeted overhead

       $180 000           $90 000

Expected activity (in direct labour hours)

             15 000             60 000

Expected activity (in machine hours)

             30 000               8 250

Explanation / Answer

Activity 1

Part 1 Total overheads   $ 300,000 total labour hours(15000+60000)   75,000 labur hours Predetermined Plantwide overhead rate = Total overheads/ Total labour hours                                                      ( 300,000 /75000) = $ 4 per hour PARt 2: Unit cost of product based on plantwide rate LASER INKJET Labour hours Fabrication 1000 14000 Assembly 20000 48000 Total labour hours 21000 62000 Prime cost 60000 450000 Overhead @ 4 per labour hour 84000 248000 Total cost 144000 698000 Units Produced 7500 75000 Cost per unit(Total cost / units produced) 19.2 9.31 Part 3: Fabrication deptt overhead rate = Total overhead of deptt/ machine hours                                           ( 180,000 /30,000)= $ 6 per machine hour Assemble deptt overhead rate = Total Overhead of deptt/ labour hours                                          (90,000/60,000) = $ 1.50 per labour hour Part4: Uits cost based on deptt overhead rate LASER INKJET Labour hours of assemble deptt 20000 48000 Machine hours of Fabrication deptt 10000 20000 Prime cost 60000 450000 Overhead of assemble deptt@1.50 per labour hour 30000 72000 Overhead of Fabrication@6 per machine hr 60000 120000 Total Cost 150000 642,000 Units produced 7500 75000 Cost per unit 20 8.56

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