Question

#10

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 $282,000.

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			610			830
Skim milk			390			670
Cream			300			530
			1,300			2,030
Packing Department
Whole milk			180			1,320
Skim milk			190			810
Cream			175			870
			545			3,000
	Total		1,845			5,030

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	$156,000
Packing Department	126,000
Total	$282,000

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	$		$		$

Answer 1

Solution 1:

Blending Department overhead rate = Overhead cost of Blending Department / Total Direct Labor Hours of Blending Department

= $156,000 / 1300 = $120 per Direct labor hour

Packing Department overhead rate = Overhead cost of Packing Department / Total Machine Hours of Packing Department

= $126,000 / 3000 = $42 per Machine hour

Solution 2:

	Whole Milk	Skim Milk	Cream
Blending Department Factory Overhead (Labor hour*$120)	$73,200.00	$46,800.00	$36,000.00
Packing Department Factory overhead (Machine Hour*$42)	$55,440.00	$34,020.00	$36,540.00
Total Factory Overhead	$1,28,640.00	$80,820.00	$72,540.00