Question

Multiple Production Department Factory Overhead Rates

Spotted Cow Dairy Company manufactures three products—whole milk, skim milk, and cream—in two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $589,300.

The three products consume both machine hours and direct labor hours in the two production departments as follows:

		Direct Labor Hours			Machine Hours
Blending Department
Whole milk			800			1,090
Skim milk			510			870
Cream			390			690
			1,700			2,650
Packing Department
Whole milk			240			1,720
Skim milk			250			1,050
Cream			225			1,130
			715			3,900
	Total		2,415			6,550

The management of Spotted Cow Dairy Company now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows:

Blending Department	$289,000
Packing Department	300,300
Total	$589,300

Required:

If required, round all amounts to the nearest dollar.

1. Determine the multiple production department factory overhead rates, using direct labor hours for the Blending Department and machine hours for the Packing Department.

Blending Department	$ per direct labor hour
Packing Department	$ per machine hour

2. Determine the product factory overhead costs, using the multiple production department rates in (1).

	Whole milk		Skim milk		Cream
Blending Department factory overhead	$		$		$
Packing Department factory overhead
Total factory overhead	$		$		$

Feedback

1. Calculate for each department:
Total department overhead ÷ total activity base = Department rate

2. Calculate for each product:
Activity base-usage x Activity Rate from Req. (1) = Activity cost for each activity.
Then sum all activity costs per product to determine a total overhead for each product.

Answer 1

1.

Multiple Production Department factory overhead rate for Blending department = Total overhead / Total Labour hours

289000/1700= $170 per Direct labour hour

Overhead rate for Packing department-= Total overhead/Total machine hours

300300/3900= $77 per Machine Hour

2.

Blending Department:

Whole milk =800*170=$136000

Skim Milk=510*170=$86700

Cream=390*170=$66300

Packing department

Whole milk =1720*77=$132440

Skim Milk= 1050 * 77= $80850

Cream=1130*77=$87010

Total cost of overhead for each Product

Whole milk =$132440+$136000=$268440

Skim Milk= $80850+$86700=$167550

Cream= $87010+$66300= $153310