Question Details

Romsen Manufacturing, Inc., a producer of precision machine parts, uses a predeter-

mined overhead rate to apply overhead. Overhead is applied on the basis of machine

hours in the Drilling Department and on the basis of direct hours in the Assembly

Department. At the beginning of 2006, the following estimates are provided for the

coming year:

Drilling Assembly

Direct labor hours 20,000 200,000

Machine hours 280,000 20,000

Inspection hours 4,000 8,000

Direct labor cost $380,000 $1,800,000

Overhead cost $600,000 $392,000

Actual results reported for 2006 are as follows:

Drilling Assembly

Direct labor hours 42,000 196,000

Machine hours 288,000 22,000

Inspection hours 4,000 8,000

Direct labor cost $168,000 $882,400

Overhead cost $602,000 $412,000

Required

1. Compute the predetermined overhead rates for each department.

2. Compute the applied overhead for the year 2006. What is the underapplied or

overapplied overhead for each department? For the firm?

3. Suppose a job used 4,000 machine hours in drilling and 1,600 direct labor hours

in assembly. If the job size is 8,000 units, what is the overhead cost per unit?