Question

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about the estimated overhead and direct labor hours.

  
Overhead   Direct
Labor Hours (dlh)   Product
A    B
Painting Dept.   $256,200      11,400   dlh      14   dlh   6   dlh
Finishing Dept.   76,300      9,000         2      20     
Totals   $332,500      20,400   dlh      16   dlh   26   dlh

Determine the overhead in the Painting Department for each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system.

a.$134.82 per unit
b.$97.79 per unit
c.$50.87 per unit
d.$22.47 per unit

Answer 1

Solution

Blue Ridge Marketing Inc

Determination of the overhead in the Painting Department for each unit of Product B if the company uses the multiple department rate system:

Painting department activity rate based on direct labor hours = overhead cost at painting department/direct labor hours in painting department

Overhead cost = $256,200

Direct labor hours = 11,400

Overhead rate = 256,200/11,400 = $22.47 per hour

Each unit of product B needs 6 direct labor hours in painting department.

Per unit overhead cost of Product B in painting department = 6 hours x $22.47 = $134.82