Single rate versus departmental rates Eastern Wood Products has two production departments: cutting...

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Single rate versus departmental rates Eastern Wood Products has two production departments: 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


$25,000


$35,000


$60,000




Direct labor hours


1,000


3,000


4,000




Machine hours


4,000


2,000


6,000




Required
(a) Compute the plantwide cost driver rate.
(b) Determine departmental cost driver rates based on direct labor hours for assembly and machine hours for cutting.
(c) Provide reasons why Eastern Wood might use the method in part a or the one in part b.

David · Accepted Answer

Single rate verse departmental rates Western Wood Product has two production departments: 
cutting and assembly. The company has been using a single predetermined cost driver rate 
based on plantwide direct labor hours. That is, the plantwide cost driver rate is computed by 
dividing plantwide support costs by total plantwide direct labor hours. The estimates for 
support costs and quantities of cost drivers for 2006 follow:

Single rate versus departmental rates Eastern Wood Products has two production departments: cutting and assembly. The company has been using a plantwide cost driver rate computed by dividing plantwide...

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	CUTTING	ASSEMBLY	TOTAL
Manufacturing overhead	$25,000	$35,000	$60,000
Direct labor hours	1,000	3,000	4,000
Machine hours	4,000	2,000	6,000