Chapter 18 PR 18-2B PR.18-02B.ALGO Hide or show questions Progress:1/1 items eBo

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Chapter 18 PR 18-2B

PR.18-02B.ALGO

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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 $530,200.

The three products consume both machine hours and direct labor hours in the two production departments as follows:

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:

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.

2. Determine the product factory overhead costs, using the multiple production department rates in (1).

Direct Labor Hours Machine Hours Blending Department Whole milk 850 1,150 Skim milk 540 930 Cream 410 730 1,800 2,810 Packing Department Whole milk 250 1,670 Skim milk 260 1,030 Cream 245 1,100 755 3,800 Total 2,555 6,610

Explanation / Answer

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 = 306000/1800 = 170 per labour hour

Packing department = 224200/3800 = 59 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 144500 91800 69700 Packing Department factory overhead 98530 60770 64900 Total factory overhead 243030 152570 134600

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