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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. 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.
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