Zippy Bags manufactures plastic bags with zippers for the consumer market. It makes the product in three sizes: one pint, one quart, and one gallon. It produces the product in large batches using the following production sequence: Molding, where the bags are produced; Assembly, where the zippers are added; and Packaging, where the bags are boxed for sale to customers. One-pint sandwich bags do not have zippers but have a simple flap that folds over to hold the contents. Overhead in the plant is currently charged out on direct labor dollars. Labor is paid $15 per hour. The information for the four departments and for a batch of each of the three bag types is in the following tables.

REQUIRED:

a. Calculate the current overhead rate using direct labor hours as your driver for Zippy Bags. Be sure to include all forms of overhead, no matter where the money is spent.

b. How much does it cost per box of bags of each type using direct labor dollars as the overhead rate?

c. Now develop six rates for your plant. Molding will be charged on machine hours, Assembly on direct labor hours, Packaging on boxes packaged, Set-Up on set-up hours, Inspection on inspection hours, and General Overhead on direct labor dollars.

d. How much does it cost now to make a box of each type of bag?

e. Which method for calculating overhead is better? Why?

Transcribed Image Text:

Zippy Bags Molding Assembly Packaging Set-Up Inspection General Overhead Overhead $1,000,000 $3,000,000 $2,400,000 $120,000 $800,000 $1,600,000 Direct labor hours 100,000 240,000 60,000 NA NA NA Nochine hours 10,000 4,000 12,000 NA NA NA Bags made Zippers attached Boxes packaged 5,000,000,000 NA NA NA NA NA NA 2,500,000,000 NA NA NA NA NA NA 125,000,000 NA NA NA Set- up hours NA NA NA 2,400 NA NA Inspection hours NA NA NA NA 32,000 NA