Required informationSkip to questionHeidelberg Fabrication manufactures two products, G-09 and G-35: G-09 G-35Units produced 19,800 3,960Direct materials cost per unit $ 7 $ 19Machine-hours per unit 4 7Production runs per quarter 144 72Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow:Machine depreciation $ 106,920Setup labor 53,460Materials handling 42,768Total $ 203,148Required:Heidelberg currently applies overhead on the basis of machine-hours. What is the predetermined overhead rate for the quarter?Note: Round your answer to 2 decimal places.Heidelberg is thinking of adopting an ABC system. They have tentatively chosen the following cost drivers: machine-hours for machine depreciation, production runs for setup labor, and direct material dollars for materials handling. Compute the cost driver rates for the proposed system at Heidelberg.
Question
Required informationSkip to questionHeidelberg Fabrication manufactures two products, G-09 and G-35: G-09 G-35Units produced 19,800 3,960Direct materials cost per unit 19Machine-hours per unit 4 7Production runs per quarter 144 72Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow:Machine depreciation 203,148Required:Heidelberg currently applies overhead on the basis of machine-hours. What is the predetermined overhead rate for the quarter?Note: Round your answer to 2 decimal places.Heidelberg is thinking of adopting an ABC system. They have tentatively chosen the following cost drivers: machine-hours for machine depreciation, production runs for setup labor, and direct material dollars for materials handling. Compute the cost driver rates for the proposed system at Heidelberg.
Solution
To answer this question, we need to follow these steps:
Step 1: Calculate the predetermined overhead rate for the quarter.
The predetermined overhead rate is calculated by dividing the total overhead costs by the total machine hours.
First, we need to find the total machine hours. We do this by multiplying the machine hours per unit by the number of units produced for each product:
G-09: 19,800 units * 4 hours/unit = 79,200 hours G-35: 3,960 units * 7 hours/unit = 27,720 hours
Total machine hours = 79,200 hours + 27,720 hours = 106,920 hours
Next, we divide the total overhead costs ($203,148) by the total machine hours (106,920 hours):
Predetermined overhead rate = 1.90 per machine hour (rounded to 2 decimal places)
Step 2: Compute the cost driver rates for the proposed ABC system.
Machine depreciation: This is driven by machine hours. The total cost is 106,920 / 106,920 hours = $1.00 per machine hour.
Setup labor: This is driven by production runs. The total cost is 53,460 / 216 runs = $247.50 per run.
Materials handling: This is driven by direct material dollars. The total cost is 7/unit for G-09 * 19,800 units) + (138,600 + 213,840. So, the cost driver rate is 213,840 = $0.20 per direct material dollar.
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