Pack’s Snacks makes potato chips, corn chips, and cheese puffs using three different production lines within the same manufacturing plant. Currently, Pack uses a single plantwide overhead rate to allocate its $3,500,000 of annual manufacturing overhead. Of this amount, $1,800,000 is associated with the potato chip line, $1,000,000 with the corn chip line, and $700,000 with the cheese puff line. Pack’s plant is currently running a total of 17,500 machine hours: 11,250 in the potato chip line, 3,450 in the corn chip line, an 2,800 in the cheese puff line. Pack considers machine hours to be the cost driver of MOH costs.
1. What is Pack’s plantwide overhead rate?
2. Calculate the departmental overhead rates for Pack’s three production lines. Round all answers to the nearest cent.
3. Which products are overcosted by the plantwide rate? Which products are undercosted by the plantwide rate?