Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the com

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.

  Direct labor                           Product

                                                        Overhead                        hours (dlh)             A                B

Painting dept                                   248,000                               10,000dlh           16dlh             4dlh

finishing dept.                                    72,000                                 10,000               4                  16

Total                                              320,000                                  20,000dlh            20 dlh          20dlh   

Determine the overhead from both production departments allocated to each unit of Product A if the company uses a multiple department rate system.
a. $425.60 per unit

b. $320.00 per unit

c. $214.40 per unit

d. $396.80 per unit

Explanation / Answer

Painting dept Dlh rate = $248,000/10000 = $24.80 Finishing dept dlh Rate = $72000/10000 = $7.20 So OH rate for Prod A = 16 dlh of Painting*Painting OH Rate + 4 Hrs of finishing*Finishing OH rate = 16*$24.80 + 4*$7.20 = $425.60 .............Ans (a)

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