Lansing, Inc., provided the following data for its two producing departments: Molding Polishing Total Estimated overhead $400,000 $80,000 $480,000 Direct labour hours (expected andactual): Form A 1,000 5,000 6,000 FormB 4,000 15,000 19,000 Total 5,000 20,000 25,000 Machine hours: Form A 3,500 3,000 6,500 FormB 1,500 2,000 3,500 Total 5,000 5,000 10,000 Machine hours are used to assign the overhead of the Molding Department, and direct laborhours are used to assign the overhead of the Polishing Department. There are 30,000 units ofForm A produced and sold and 50,000 of Form B. Required: Calculate the overhead rates for each department. Using departmental rates, assign overhead to the two products and calculate the overhead costper unit. How does this compare with-the plantwide rate unit cost, using direct labour hours? What if the machine hours in Molding were 1,200 for Form A and 3,800 for Form Band thedirect labour hours used in Polishing were 5,000 and 15,000, respectively? Calculate the overheadcost per unit for each product using departmental rates,and compare with the plantwiderate unit costs calculated in Requirement 2. What can you conclude from this outcome?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 3CE: Lansing. Inc., provided the following data for its two producing departments: Machine hours are used...

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Lansing, Inc., provided the following data for its two producing departments:

	Molding	Polishing	Total
Estimated overhead	$400,000	$80,000	$480,000
Direct labour hours (expected andactual):
Form A	1,000	5,000	6,000
FormB	4,000	15,000	19,000
Total	5,000	20,000	25,000
Machine hours:
Form A	3,500	3,000	6,500
FormB	1,500	2,000	3,500
Total	5,000	5,000	10,000

Machine hours are used to assign the overhead of the Molding Department, and direct laborhours are used to assign the overhead of the Polishing Department. There are 30,000 units ofForm A produced and sold and 50,000 of Form B.

Required:

Calculate the overhead rates for each department.
Using departmental rates, assign overhead to the two products and calculate the overhead costper unit. How does this compare with-the plantwide rate unit cost, using direct labour hours?
What if the machine hours in Molding were 1,200 for Form A and 3,800 for Form Band thedirect labour hours used in Polishing were 5,000 and 15,000, respectively? Calculate the overheadcost per unit for each product using departmental rates,and compare with the plantwiderate unit costs calculated in Requirement 2. What can you conclude from this outcome?

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