Problem
Travel craft. Inc manufactures a complete line of fibre glass suitcases and attaché cases. The firm has
three manufacturing departments: Moulding, Component and Assembly. There are two service
departments: Power and Maintance
The sides of the cases are manufactured in the moulding department, the frames, hinges and locks
are manufactured in the component department. The cases are completed in the assembly
department. Varying amount of materials, time and efforts are required for each of the cases. The
power department and maintenance department provide services to three manufacturing
departments.
Travel Craft has always used the plantwide overhead rate. Direct labour hours are used to assign
overheads to the product. The predetermined overhead rate is calculated by dividing the companies
total estimated overhead by the total estimated direct labour hours to be worked in the three
manufacturing departments.
Karon Mason, director of cost management, has recommended that Travel Craft use departmental
overhead rates. The planned operating costs and expected levels of activity for the coming year have
been developed by Mason and are presented by the department in the following schedules (All Nos
in thousands)
Manufacturing Departments
Moulding Component Assembly
Department Activity Measures
Direct Labour Hours 500 2000 1500
Machine Hours 875 125 0
Departmental Costs
Direct Materials (in $) 24800 60000 2500
Direct Labour (in $) 7000 40000 24000
Variable Overheads (in $) 7000 20000 33000
Fixed Overheads (in $) 35000 12400 12200
Total Departmental Costs 73800 132400 71700
Manufacturing Department
Moulding Component Assembly
Use of service department
Maintenance
Estimated usage in labour hours in 90 25 10
the coming year
Power (in Kilowatt-hours)
Estimated usage for the coming year 360 320 120
Maximum allotted capacity 500 350 150
Service Department
Power Maintenance
Maximum capacity 1000 KWH Adjustable
Estimated Usage 800 KWH 125
Departmental Costs
Maintenance and Supplies 10000 3000
Variable Labour (in $) 2800 4500
Fixed Overhead (in $) 24000 500
Total Service Department Costs 36800 8000
Calculate the plantwide overhead rate for the coming year
Mason has asked to develop departmental overhead rates for comparison with the plantwide rate.
a. Maintenance department costs should be allocated using the direct method
b. Power department costs should be allocated to three manufacturing department using dual
cost combined with direct method. Fixed costs are to be allocated according to maximum
usage capacity and variable costs are to be allocated according to planned usage for the
coming year.
c. Calculate departmental overhead rate for the three manufacturing departments using a
machine-hour cost driver for the moulding department and a direct-labour-hour cost driver
for the component and assembly departments.
d. A particular variety of suitcase requires the following
a. 1 unit of material from moulding costing $ 5, 2 units of materials from component
costing $ 7 each and 5 unit of material from assembly costing $ 0.2 each
b. Direct labour hours required
i. Moulding 0.5 hours
ii. Component 0.4 hours
iii. Assembly 0.3 hours
c. Machine hours required
i. Moulding 0.2 hour
ii. Component 0.1 hour
What is the cost of manufacturing this particular variety of suitcase