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.