Multiple Production Department Factory Overhead Rates Spotted Cow Dairy Company

Question

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 $631,800 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 Skim milk Cream 850 540 410 1,800 1,150 930 730 2,810 Packing Department Whole milk Skim milk Cream 250 260 245 755 2,555 1,670 1,030 1,100 3,800 6,610 Total 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 Packing Department $324,000 307,800 $631,800 Total 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 Packing Department 2. Determine the product factory overhead costs, using the multiple production department rates in (1) per direct labor hour per machine hour Whole milk Skim milk Cream Blending Department factory overhead Packing Department factory overhead Total factory overhead

Explanation / Answer

Spotted Cow Dairy Company

Blending Department

estimated cost

cost driver - DLH

activity rate

$324,000

1,800 DLH

$180 per DLH

Packaging Department

Estimated Cost

Cost driver - MH

Activity Rate

$307,800

3,800 MH

$81 per MH

Note –

DLH – direct labor hour; MH – machine hours

Whole Milk

Skim Milk

Cream

Total

Blending department factory overhead

$153,000

$97,200

$73,800

$324,000

Packaging department factory overhead

$135,270

$83,430

$89,100

$307,800

Total

$288,270

$180,630

$162,900

$631,800

Blending Department -

Whole Milk

Skim Milk

Cream

Total

direct labor hours

850

540

410

1,800

direct labor rate

$180

$180

$180

allocated cost

$153,000

$97,200

$73,800

324,000

Packaging Department

Whole Milk

Skim Milk

Cream

Total

Machine hours

1,670

1,030

1,100

3,800

machine hour rate

$81

$81

$81

allocated cost

$135,270

$83,430

$89,100

$307,800

Blending Department

estimated cost

cost driver - DLH

activity rate

$324,000

1,800 DLH

$180 per DLH

Packaging Department

Estimated Cost

Cost driver - MH

Activity Rate

$307,800

3,800 MH

$81 per MH

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