Question

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. 

Determine the overhead in the Finishing Department for each unit of Product A if Blue Ridge Marketing Inc, uses a multiple department rate system 

$64.00 per unit 

$28.80 per unit 

$49.60 per unit 

$99.20 per unit

Answer 1

Finishing department overhead = $72,000

Finishing department direct labor hours = 10,000

Finishing department overhead rate = Finishing department overhead/Finishing department direct labor hours

= 72,000/10,000

= $7.2 per direct labor hour

Finishing department overhead rate for each unit of product A = Finishing department overhead rate x Direct labor hours used in finishing department

= 7.2 x 4

= $28.80 per unit

Second option is correct option.