Adams Corporation manufactures auto steering systems.
Cost estimates for one unit of the product for the year 2010 follow:
Direct materials ....... $200
Direct labor ($12/hour) ..... 240
Machine-hours ......... 20
This product requires 12 hours of direct labor in department A and 8 hours in department B. Also, it requires 5 machine-hours in department A and 15 machine-hours in department B. The factory overhead costs estimated in these two departments follow:

Management expects the firm to produce 1,000 units during 2010.

Required
1. Assume that factory overhead was applied on the basis of direct labor-hours. Compute the predetermined factory overhead rate.
2. If factory overhead were applied on the basis of machine-hours, what would be the plantwide overhead rate?
3. If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2?
4. If you were asked to evaluate the performance of each department manager, which allocation basis (cost driver) would you use? Why?
5. Compute the departmental overhead rates for eachdepartment.

Transcribed Image Text:

Variable cost Fixed cost $146,000 94,000 $77,000 163,000