Western Wood Products has two production departments: cuttingand assembly. The c

Question

Western Wood Products has two production departments: cuttingand assembly. The company has been using a singlepredetermined cost driver rate based on plantwide direct laborhours. That is, the plantwide cost driver rate iscomputed by dividing plantwide support costs by total plantwidedirect labor hours. The estimated for support costs andquantities of cost drivers for 2006 follow:

                                                  Cutting                         Assembly                    Total
Manufacturingsupport                25,000                         35,000                        60,000
Direct laborhours                         1,000                           3,000                         4,000
Machinehours                               4,000                          2,000                         6,000

a. What was the single plantwide cost driver rate for2006?

b. Determine departmental cost driver rates based on directlabor hours for assembly and machine hours for cutting.

c. Provide reasons why Western Wood night use the method in(a) or (b).

Explanation / Answer

a. What was the single plantwide cost driver rate for2006?
                    Plantwide Cost driverrate    =   Total ManufacturingSupport Cost / Plantwide direct labor hour                                                          =   60,000/ 4,000                                                          =   15per direct labor hour b. Determine departmental cost driver rates based ondirect labor hours for assembly and machine hours for cutting.
        Cutting dept. Cost driverrate   =   Manufacturing Support Costin Cutting dept. / Machine hours in Cutting dept.                                                               =   25,000   /   4,000                                                                  =   6.25per Machine Hour Assembly department Cost driverrate   =   Manufacturing Support Costin Assembly department / DLH in Assembly dept.                                                             =   35,000   /   3,000                                                                 =   11.67per DLH c. Provide reasons why Western Wood night use the methodin (a) or (b).
             Western Wood Productsshould use Plantwide cost driver rate instead of singlepredetermined cost driver rate based       on plantwide direct labordue to the following reasons :
      1)   Plantwidecost comparison can be made separately for cutting plant andassembly plant       2)   Identifythe cost that can be eliminated or reduced in department havingscope for.       3)   Toeliminate chances of poor performance in any department to be setoff against better performance in mate             department.                                                                    =   35,000   /   3,000                                                                 =   11.67per DLH c. Provide reasons why Western Wood night use the methodin (a) or (b).
             Western Wood Productsshould use Plantwide cost driver rate instead of singlepredetermined cost driver rate based       on plantwide direct labordue to the following reasons :
      1)   Plantwidecost comparison can be made separately for cutting plant andassembly plant       2)   Identifythe cost that can be eliminated or reduced in department havingscope for.       3)   Toeliminate chances of poor performance in any department to be setoff against better performance in mate             department.       

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