Reference no: EM132548899

Scenario

Copy House Ltd produces two types of computer printers, a laser model and an inkjet model, which pass through two production departments, Production and Assembly. The following data relate to the year just ended:

Budget information:          Production                  Assembly

Budgeted overhead               $270 000                  $135 000

Expected activity                  22 500                       90 000

(in direct labour hours)

Expected activity                    45 000                         12 375

(in machine hours)

Actual Information:                       Laser                           Inkjet

Units produced                           11 250                    112 500

Prime costs                              $90 000                    $675 000

Direct labour hours used:

Production                               1 500                          21 000

Assembly                                  30 000                          72 000

Machine hours used:

Production                                  15 000                     30 000

Assembly                                        1 500                      12 000

Note: Actual overhead costs for the year were $450,000.

Required:

Question 1: Calculate the predetermined plantwide overhead rate based on direct labour hours.

Question 2: Calculate the per unit cost of the laser and inkjet printers, based on a plantwide overhead rate assuming that direct labour hours is the cost driver.

Question 3: Calculate the predetermined departmental overhead rates, assuming that machine hours is the cost driver in production and direct labour hours is the cost driver in assembly.

Question 4: Calculate the cost per units of the laser and inkjet printers, based on the departmental overhead rates.

Question 5: Estimate the amount of underapplied or overapplied overhead using:

1. Plantwide overhead rate.
2. Departmental overhead rates.

Question 1: Which approach is best for Copy House Ltd: a plantwide overhead rate or departmental overhead rates? Why?