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Single rate versus departmental rates Bravo Steel Company supplies structural steel products to the construction industry Its plant has three production departments cutting grinding and drilling

Single rate versus departmental rates Bravo Steel Company supplies structural steel products to the construction industry. Its plant has three production departments: cutting, grinding, and drilling. The estimated overhead cost and practical capacity direct labor hours and machine hours for each department for the current year follow:

 

CUTTING

GRINDING

DRILLING

Overhead cost

$504,000

$2,304,000

$2,736,000

Estimated direct labor hours

60,000

96,000

144,000

Estimated machine hours

960,000

480,000

360,000

Job ST101 consumed the following direct labor and machine hours:

 

CUTTING

GRINDING

DRILLING

Direct labor hours

2,000

2,500

3,000

Machine hours

20,000

3,000

2,000

Required

(a) Suppose that a plantwide cost driver rate is computed by dividing plantwide overhead costs by plantwide practical capacity direct labor hours. Determine the overhead cost applied to job ST101.

(b) Determine the departmental cost driver rates and overhead costs applied to job ST101 if machine hours are used as the cost driver in the cutting department and direct labor hours are used as the cost driver for the grinding and drilling departments.

(c) Explain why Bravo Steel might prefer a plantwide rate or departmental cost driver rates.

Jul 01 2020 View more View Less

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