Travelcraft, Inc., manufactures a complete line of fiberglass suitcases and attach cases. The firm has three manufacturing

Travelcraft, Inc., manufactures a complete line of fiberglass suitcases and attaché 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 Department.

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 plantwide 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 are presented by department in the following schedules. (All numbers are in thousands.)

Continues

Required:
1. Calculate the plantwide overhead rate for Travelcraft, Inc., 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 plantwide 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 dual cost allocation 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 plantwide rate or departmental rates to assign overhead to products.
(CMA,adapted)

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Manufacturing Departments Molding Component Assembly Department activity measures: Direct-labor hour Machine hours 500 875 2,000 125 1,500 Departmental costs: Direct materia Direct labor Variable overhead.. Fixed overhead Total departmental costs. $24,800 7,000 7,000 35,000 $73,800 60,000 2,500 24,000 33,000 12,400 12,200 40,000 20,000 $132400$71,700 Use of service departmenis: Mainteance Estimated usage in labor hours for the coming year 90 25 10 Power fin kilowatt-hours): Estimated usage for the coming year Maximum allotted capacity 360 500 120 320 350 150 Service Departments Power Maintenance Departmental activity measures 1,000 kilowatt-hours Maximum capacity Estimated usage for the coming year Acjustable 125 hours 800 kilowatt-hours Departmental costs: Materials and supplies Variable labor Fixed overhead Total service department csts. $10,000 2,800 24,000 $36,800 S3,000 4,500 500 S8,000