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:

Department A	All Products	Product X
Overhead	$4,900,000	--
Direct labor hours	40,000	718
Machine hours	100,000	1,070
Units produced	55,000	900
Department B
Overhead	$1,900,000	--
Direct labor hours	50,000	106
Machine hours	120,000	880
Units produced	33,000	900

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

Answer- Overhead allocated to Product X = Department A overhead cost+ Department B overhead cost

= $87955+$4028

= $91983

Explanation- Allocation of overhead to Product X department wise using single driver allocation system (ie- Direct labor hours)-

Department A (Overhead rate per labor hour) = Overhead costs/Total direct labor hours

= $4900000/40000 hours = $122.50 per hour

Overhead (Department A) = $122.50 per hour*718 labor hours

= $87955

Department B (Overhead rate per labor hour) = Overhead costs/Total direct labor hours

= $1900000/50000 hours = $38 per hour

Overhead (Department A) = $38 per hour*106 labor hours

= $4028