A Company Produces Heating Elements That Go Through Two Operations

question 56

True/False

A company produces heating elements that go through two operations, casting and assembling, before they are complete.Expected costs and activities for the two departments are shown below.Given this information, the departmental overhead rate for the assembling department based on direct labor hours is $5 per direct labor hour.
$$\begin{array} { l c c } & \text { Casting } & \text { Assembling } \\\text { Direct labor hours } & 1,875 \mathrm { DLH } & 7,500 \mathrm { DLH } \\\text { Machine hours } & 12,500 \mathrm { MH } & 3,750 \mathrm { MH } \\\text { Overhead costs } & \$ 75,000 & \$ 37,500\end{array}$$

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Definitions:

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Total Period Cost

The sum of all costs incurred during a specific financial period, encompassing both manufacturing and non-manufacturing expenses.

Absorption Costing

An accounting method that includes all manufacturing costs (both fixed and variable) in the cost of a product.

Net Operating Income

The profitability measure that calculates the amount of money a company makes from its primary business operations, excluding costs and expenses related to financing and taxes.