X Company has two production departments, X and Y. Listed below are budgeted inf

Question

X Company has two production departments, X and Y. Listed below are budgeted information for the two departments, and actual information for one of its products, Product 1:

3. Using a plantwide allocation system with direct labor hours as the cost driver, what was the allocation to Product 1 [round overhead rates to the nearest cent]?

4. Using a departmental allocation system with machine hours as the cost driver in Department X and direct labor hours as the cost driver in Department Y, what was the allocation to Product 1 [round overhead rates to the nearest cent]?

Department X All Products Product 1    Overhead $5,800,000    -          Direct labor $680,000    $13,566        Direct labor hours 40,000    798        Machine hours 120,000    1,030        Units produced 57,000    790     Department Y    Overhead $2,100,000    -          Direct labor $850,000    $4,131        Direct labor hours 50,000    243        Machine hours 120,000    840        Units produced 34,000    790    

Explanation / Answer

3. For PLANTWIDE, OHR = Total OH/Cost Driver

Add up your stated cost driver(direct labor hours), 40,000+50,000 = 90,000.

Total overhead =$5,800,000+ $2,100,000 =$7,900,000

So overhead rate is = $7,900,000/90,000 = $87.78 Allocate that to Dept A & B for what they use in whichever job are specified

X: 87.78 x 798 = 70048.44

Y: 87.78 x 243 = 21,330.54

Total $91,378.98

4. Use individual department information.

Dept X OHR = OH/Cost driver(Machine Hours) = $5,800,000/$120,000 = $48.33

OHR x MH = 48.33 x 1030 = $49,779.9

Dept Y OHR = OH/Cost driver(Direct Labor Hours) = $2,100,000/50,000 = $42.00

OHR x DLR = 42 x 243 = $10,206

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