Question

Laval produces lamps and home lighting fixtures. Its most popular product is a brushed aluminum desk lamp. This lamp is made from components shaped in the fabricating department and assembled in the assembly department. Information related to the 26,000 desk lamps produced annually follows. Direct materials $ 265,000 Direct labor Fabricating department (6,500 DLH × $26 per DLH) $ 169,000 Assembly department (15,800 DLH × $25 per DLH) $ 395,000 Machine hours Fabricating department 14,500 MH Assembly department 21,100 MH Expected overhead cost and related data for the two production departments follow. Fabricating Assembly Direct labor hours 210,000 DLH 295,000 DLH Machine hours 167,000 MH 125,000 MH Overhead cost $ 360,000 $ 455,000 Required 1. Determine the plantwide overhead rate for Laval using direct labor hours as a base. 2. Determine the total manufacturing cost per unit for the aluminum desk lamp using the plantwide overhead rate. 3. Compute departmental overhead rates based on machine hours in the fabricating department and direct labor hours in the assembly department. 4. Use departmental overhead rates from requirement 3 to determine the total manufacturing cost per unit for the aluminum desk lamps.

Answer 1

Answer:

1. Estimated overhead rate on Plant level                     $ 1.614 per hour

2. Total manufacturing cost per unit                                $ 33.27 per unit    

3. Overhead rate -Fabricating Department based on MH  $ 2.16 per MH

    Overhead rate for Assembly Department on DLH         $ 1.54 per DLH

4.  Total manufacturing cost on departmental rates       $ 34.03 per unit                                                                                    

Explanation:

Computation of overhead rate on plantwise basis

Plantwise overhead costs are to be determined on direct labor hours

Estimated overhead cost - Fabricating                                     $ 360,000

Estimated overhead cost - Assembly                                       $  455,000

Total Plantwise estimated overhead cost                                 $ 815,000

Direct Labor Hours - Fabricating                                                210,000 hours

Direct Labor hours - Assembly                                                   295,000 hours

Total Direct Labor hours - Plant                                                505,000 hours

Estimated overhead rate on Plant level                                $ 1.614 per hour

Computation of total manufacturing cost per unit

Direct Materials                                                                              $ 265,000

Direct Labor

Fabricating = ( 6,500 DLH * $ 26 per hour)       $ 169,000

Assembly = ( 15,800 DLH * $ 35 per hour)        $ 395,000  

Total Direct Labor Cost                                                                 $ 564,000

Total Overhead cost on basis of DLH

Fabricating 6,500+Assembly 15.800=22,300 hours at $ 1.614  $    35,992

Total manufacturing cost                                                               $ 864,992

No of units produced                                                                          26,000

Total manufacturing cost per unit ( $ 864,992/26,000)     $ 33.27 per unit

Computation of departmental overhead rates

Fabricating Department

Estimated overhead cost - Fabricating                                     $ 360,000  

Estimated Machine Hours - Fabricating                                      167,000 hours

Overhead rate for Fabricating Department based on MH       $  2.16 per MH

Assembly Department

Estimated overhead cost - Assembly                                       $  455,000

Direct Labor hours - Assembly                                                   295,000 hours

Overhead rate for Assembly Department on DLH                   $ 1.54 per DLH                                            

Computation of manufacturing cost per unit using Departmental rates

Direct Materials                                                                              $ 265,000

Direct Labor

Fabricating = ( 6,500 DLH * $ 26 per hour)       $ 169,000

Assembly = ( 15,800 DLH * $ 35 per hour)        $ 395,000  

Total Direct Labor Cost                                                                 $ 564,000

Total Overhead cost

Fabricating 14,500 MH at $ 2.16 per MH   $   31,320

Assembly 15.800 DLH at $ 1.54 per DLH  $    24.332

Total manufacturing cost on departmental OH rates                 $   55,652

Total manufacturing cost                                                               $ 884,652

No of units produced                                                                          26,000

Total manufacturing cost per unit ( $ 884,652/26,000)   $ 34.03 per unit