Single rate versus departmental rates Northern Wood Products has two production depart- ments: cutting and assembly. The company has been using a plantwide cost driver rate computed by dividing plantwide overhead costs by total plantwide direct labor hours. The estimates for overhead costs and practical capacity quantities of cost drivers for the current year follow: CUTTING ASSEMBLY TOTAL Manufacturing overhead.. Direct labor hours... Machine hours $125,000 $35,000 5,000 2,000 $160,000 3,000 5,000 8,000 7,000 Required (a) Compute the plantwide cost driver rate. (b) Determine departmental cost driver rates based on direct labor hours for assembly and ma- chine hours for cutting. (c) Provide reasons why Northern Wood might use the method in part (a) or the one in part (b).
Single rate versus departmental rates Northern Wood Products has two production depart- ments: cutting and assembly. The company has been using a plantwide cost driver rate computed by dividing plantwide overhead costs by total plantwide direct labor hours. The estimates for overhead costs and practical capacity quantities of cost drivers for the current year follow: CUTTING ASSEMBLY TOTAL Manufacturing overhead.. Direct labor hours... Machine hours $125,000 $35,000 5,000 2,000 $160,000 3,000 5,000 8,000 7,000 Required (a) Compute the plantwide cost driver rate. (b) Determine departmental cost driver rates based on direct labor hours for assembly and ma- chine hours for cutting. (c) Provide reasons why Northern Wood might use the method in part (a) or the one in part (b).
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Single rate versus departmental rates Northern Wood Products has two production depart-
ments: cutting and assembly. The company has been using a plantwide cost driver rate computed
by dividing plantwide overhead costs by total plantwide direct labor hours. The estimates for
overhead costs and practical capacity quantities of cost drivers for the current year follow:
CUTTING
ASSEMBLY
TOTAL
$125,000
Manufacturing overhead.
Direct labor hours...
Machine hours.
3,000
5,000
$35,000
5,000
2,000
$160,000
8,000
7,000
Required
(a) Compute the plantwide cost driver rate.
(b) Determine departmental cost driver rates based on direct labor hours for assembly and ma-
chine hours for cutting.
(c) Provide reasons why Northern Wood might use the method in part (a) or the one in part (b).
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