Question

Aleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below.

Product	Number of Units	Direct Labor Hours per Unit	Machine Hours per Unit
Rings	910	6	6
Dings	2,710	3	7

All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $86,700. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $71,800.

Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours.

The Assembly Department's factory overhead rate is

a. $4.86 per machine hour

b. $3.37 per machine hour

c. $5.28 per direct labor hour

d. $3.55 per direct labor hour

Answer 1

Estimated total factory overhead for Assembly Department = $71,800.

Total Direct Labor hours

Total Direct Labor hours = [910 units x 6 hours per unit] + [2,710 x 3 hours per unit]

= 5,460 hours + 8,130 hours

= 13,590 direct labor hour

Therefore, the Assembly Department's factory overhead rate = Estimated total factory overhead / Total Direct Labor hours

= $71,800 / 13,590 direct labor hour

= $5.28 per direct labor hour

Hence, the Assembly Department's factory overhead rate is (c). $5.28 per direct labor hour