Question

X Company has two production departments, A and B. The following is budgeted information for all of its products in 2019, and actual information for one of them, Product X: Product x -- All Products $1,900,000 60,000 100,000 55,000 729 1,030 800 Department A Overhead Direct labor hours Machine hours Units produced Department B Overhead Direct labor hours Machine hours Units produced $2,200,000 40,000 120,000 43,000 239 870 800 Using a single-driver allocation system, with direct labor hours as the driver, how much overhead was allocated to Product X [round overhead rate(s) to two decimal places]?

Answer 1

Solution:

Calculation of overhead rate as per single – driver allocation system:

As per the information given in the question we have

Overheads of Department A = $ 1,900,000   ;   Overheads of Department B = $ 2,200,000

Labor hours of Department A = 60,000   ; Labor Hours of Department B = 40,000

The formula for calculating the overhead rate as per single – driver allocation system is

= Total overheads / Total Labor hours

= ( Overheads of Department A + Overheads of Department B ) / ( Labor hours of Department A + Labor hours of Department B )

= ( $ 1,900,000 + $ 2,200,000 ) / ( 60,000 + 40,000 )

= $ 4,100,000 / 100,000

= $ 41

= $ 41 ( when rounded off to two decimal places )

Thus the overhead rate as per single – driver allocation system is = $ 41

Allocation of overhead to product X:

As per the information given in the question

Overhead rate = $ 41

Direct labor hours of Department A = 729 ;        Direct labor hours of Department B = 239 ;

Total labor hours of product X = Direct labor hours of Department A + Direct labor hours of Department B

= 729 + 239

= 968 hours

The Total labor hours of product X = 968 hours

The amount of overhead to be allocated to product X is = Total labor hours of product X * Overhead rate

= 968 hours * $ 41

= $ 39,688

Thus the amount of overhead to be allocated to product X = $ 39,688