Roseville Engineering Provides Watershed and Design Services for Its Customers

Essay

Roseville Engineering provides watershed and design services for its customers.Total overhead costs this coming year are expected to be $8,000,000 ($2,000,000 in the Watershed Department,and $6,000,000 in the Design Department).If the company chooses to use the plantwide approach,overhead will be allocated using direct labor costs.Direct labor costs are expected to total $4,000,000.The Watershed Department expects to incur direct labor costs of $500,000,and the Design Department expects to work 120,000 direct labor hours.
a. Assume Roseville Engineering uses the plantwide approach to allocating overhead costs, and uses direct labor costs as the allocation base. Calculate the predetermined overhead rate and explain how this rate will be used to allocate overhead costs.

b. Assume Roseville Engineering uses the department approach for allocating overhead costs rather than the plantwide method. The Watershed Department allocates overhead based on direct labor costs and the Design Department allocates overhead based on direct labor hours. Calculate the predetermined overhead rate for each department and explain how these rates will be used to allocate overhead costs