The Kaumajet Factory produces two products - table lamps and desk lamps. It has

Question

The Kaumajet Factory produces two products - table lamps and desk lamps. It has two separate departments - Finishing and Production. The overhead budget for the Finishing Department is $391,158, using 210,300 direct labor hours. The overhead budget for the Production Department is $596,850 using 86,500 direct labor hours.

If the budget estimates that a table lamp will require 2 hours of finishing and 5 hours of production, how much factory overhead will the Kaumajet Factory allocate to each unit of table lamp using the multiple production department factory overhead rate method with an allocation base of direct labor hours?

a.$6.90

b.$79.95

c.$11.42

d.$38.22

Explanation / Answer

Solution:

Overhead rate - Finishing department = Budgeted overhead / Budgeted direct labor hours

= $391,158 / 210300 = $1.86 per hour

Overhead rate - Production department = $596,850 / 86500 = $6.90 per direct labor hour

Overhead to be allocated to each unit of table lamp = (Hour in finishing * Allocation rate of finishing) + (Hours in production department * Allocation rate of production department)

= (2 * $1.86) + (5*$6.90) = $38.22

Hence option d is correct.

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