Lassen Artworks creates hand-painted picture frames. The frames are cast from resin in an automated process. Once the casting is done, talented artisans hand-paint one of fifteen designs on each frame. In the final assembly process, a worker inserts the glass pane and attaches the backing to the frame. Lassen’s budget for the current year, along with the production requirements for two of the frames it produces, are as follows:
Required
a. Assume that Lassen Artworks uses a single predetermined overhead application rate based on direct labor hours. Calculate the rate for the current year.
b. Using the rate you calculated in part (a) and the production requirements given, calculate the amount of overhead applied to a Seasons of Fun frame and a Birth Announcement frame.
c. Lassen Artworks’ accountant has been taking a course in managerial accounting and has just learned that overhead should be applied using a causal base. She believes that direct labor hours may not be the best application base for the company and wants to explore the use of machine hours instead. Calculate the predetermined overhead application rate for the year using machine hours as the base. Using this rate, calculate the amount of overhead applied to a Seasons of Fun frame and a Birth Announcement frame.
d. The accountant has attended a few more classes and now wants to explore the use of departmental predetermined overhead rates. She has decided that machine hours is the best overhead application base for the casting department and direct labor hours is the best base for the painting and assembly departments. Do you support her choice of an overhead application base? Why? Calculate the predetermined overhead application rate for each of the three departments using the selected base.
e. Using the departmental overhead application rates developed in part (d), calculate the amount of overhead applied to a Seasons of Fun frame and a Birth Announcement frame.
f. Compare the levels of overhead applied to a Seasons of Fun frame and a Birth Announcement frame under the three different overhead application methods. Which method is best? Why?
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