Question

Calculating Departmental Overhead Rates and Applying Overhead to Production At the beginning of the year, Glaser Company estimated the following: Assembly Department Testing Department Total Overhead $391,000 $379,270 $770,270 Direct labor hours 175,000 124,250 299,250 Machine hours 59,500 69,615 129,115 Glaser uses departmental overhead rates. In the assembly department, overhead is applied on the basis of direct labor hours. In the testing department, overhead is applied on the basis of machine hours. Actual data for the month of March are as follows: Assembly Department Testing Department Total Overhead $58,650 $56,891 $115,541 Direct labor hours 26,250 18,638 44,888 Machine hours 8,925 10,442 19,367 Required: 1. Calculate the predetermined overhead rates for the assembly and testing departments. Round your answers to the nearest cent. Assembly department overhead rate $fill in the blank 1 per direct labor hour Testing department overhead rate $fill in the blank 2 per machine hour

Answer 1

1. The calculation of the predetermined overhead rates for Glaser Company is as follows:

                                            Assembly         Testing

                                         Department   Department

Predetermined overhead    $2.23            $5.45

                       ($391,000/175,000)    ($379,270/69,615)

What is the predetermined overhead rate?

The predetermined overhead rate is the dividend of the estimated overhead cost and the overhead application basis.  For example, the application basis may be direct labor hours or machine hours.

Data and Calculations:

                              Assembly         Testing

                            Department   Department       Total

Total Overhead      $391,000       $379,270    $770,270

Direct labor hours    175,000          124,250     299,250

Machine hours          59,500            69,615       129,115

Application basis: Direct labor      Machine

                                  hours              hours

                              Assembly         Testing

                            Department   Department       Total

Total Overhead      $58,650         $56,891      $115,541

Direct labor hours    26,250            18,638        44,888

Machine hours           8,925            10,442         19,367

Thus, the predetermined overhead rates is $2.23 per direct labor hour in the Assembly Department and $5.45 per machine hour in the Testing Department.

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