Travelcraft Company manufactures a complete line of fiberglass suitcases and attache cases. The firm has three manufacturing departments: Molding, Component, and Assembly. There are also two service departments: Power and Maintenance.

The sides of the cases are manufactured in the Molding Department. The frames, hinges, and locks are manufactured in the Component Department. The cases are completed in the Assembly Depart. Varying amounts of materials, time, and effort are required for each of the cases. The Power Department and Maintenance Department provide services to the three manufacturing departments.

Travelcraft has always used a plant wide overhead rate. Direct-labor hours are used to assign overhead to products. The predetermined overhead rate is calculated by dividing the company’s total estimated overhead by the total estimated direct-labor hours to be worked in the three manufacturing departments.

Karen Mason, director of cost management, has recommended that Travelcraft use departmental overhead rates. The planned operating costs and expected levels of activity for the coming year have been developed by Mason and arc presented by department in the following schedules. (All numbers are in thousands.)

Required:
1. Calculate the plant wide overhead rate for Travelcraft Company for the coming year using the same method as used in the past.
2. Karen Mason has been asked to develop departmental overhead rates for comparison with the plant wide rate. The following steps are to be followed in developing the departmental rates.
a. The Maintenance Department costs should be allocated to the three manufacturing departments using the direct method.
b. The Power Department costs should be allocated to the three manufacturing departments using the dual method combined with the direct method. Fixed costs are to be allocated according to maximum allotted capacity, and variable costs are to be allocated according to planned usage for the coming year.
c. Calculate departmental overhead rates for the three manufacturing departments using a machine-hour cost driver for the Molding Department and a direct-labor-hour cost driver for the Component and Assembly departments.
3. As Karen Mason’s assistant, draft a memo for her to send to Travelcraft’s president recommending whether the company should use a plant wide rate or departmental rates to assign overhead toproducts.

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Service Departments Power Maintenance Departmental activity measures Maximum capacity Estimated usage for the coming yeatr.. 1,000 kilowatt hours 800 kilowatt-hours Adjustable 125 hours Departmental costs: Materials and supplies Variable labor Fixed overhead Total service department costs.. 5,000 1,400 12,000 $18,400 $1,500 2,250 250 $4,000 Manufacturing Departments Molding Component Assembly Department activity measures: 2,000 125 1,500 Direct-labor hours Machine hours 500 875 Departmental costs: Direct material Direct labor Variable overhead Fixed overhead Total departmental costs $12,400 3,500 3,500 ...17,500 $36,900 $30,000 20,000 10,000 6,200 $66,200 $1,250 12,000 16,500 6,100 $35,850 Use of service departments: Maintenance Estimated usage in labor hours for the coming year 90 25 10 Power (in kilowatt-hours) Estimated usage for the coming year Maximum allotted capacity 360 500 320 350 120 150