Banning Company expects to incur $450,000 in manufacturing overhead costs during

Question

Banning Company expects to incur $450,000 in manufacturing overhead costs during 2012. Other budget information follows:

1) Use direct labor hours as the cost driver to compute the allocation rate. Determine the amount of budgeted overhead cost for each department.
2) Use machine hours as the cost driver to compute the allocation. Determine the amount of budgeted overhead cost for each department.
3) Assume that Department A manufactured a product that required 150 direct labor hours and 85 machine hours. If overhead is allocated based on direct labor hours, how much overhead would be allocated to this product?
4) Assume that Department A manufactured a product that required 150 direct labor hours and 85 machine hours. If overhead is allocated based on machine hours, how much overhead would be allocated to this product?

Explanation / Answer

Answer 1. Predetermined MOH Rate = $450000 (MOH) / 20000 Hrs (Total DLH) Predetermined MOH Rate = $22.50 per DLH Allcation of MOH to Department Department Amount A 10000 DLH X $22.50          225,000 B 2000 DLH X $22.50            45,000 C 8000 DLH X $22.50          180,000 Total          450,000 Answer 2. Predetermined MOH Rate = $450000 (MOH) / 15000 Hrs (Total Mach. Hr) Predetermined MOH Rate = $30.00 per Mach. Hr. Allcation of MOH to Department Department Amount A 3000 DLH X $30            90,000 B 5000 DLH X $30          150,000 C 7000 DLH X $30          210,000 Total          450,000 Answer 3. MOH Allocated to Product = 150 DLH X $22.50 (Pre-determine Overhead Rate) = $3375 Answer 4. MOH Allocated to Product = 85 Mach. Hr. X $30 (Pre-determine Overhead Rate) = $2550

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