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 estimated overhead and direct labor hours.

	Overhead		Direct Labor Hours (dlh)			Product
						A		B
Painting Dept.	$248,000		10,000	dlh		16	dlh	4	dlh
Finishing Dept.	72,000		10,000			4		16
Totals	$320,000		20,000	dlh		20	dlh	20	dlh

Using a single plantwide rate, the factory overhead allocated per unit of Product B is

1. a.$640

   b.$320

   c.$144

   d.$496

Answer 1

Estimated overheads = $320,000

Estimated direct labor hours = 20,000

Predetermined overhead rate = Estimated overheads/ Estimated direct labor hours

= 320,000/20,000

= $16 per direct labor hour

Direct labor hours used in making unit of product B = 20

Factory overhead allocated to per unit of product B = Direct labor hours used in making unit of product B x Predetermined overhead rate

= 20 x 16

= $320

The factory overhead allocated per unit of Product B is = $320

Correct option is b.

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