The company has two departments – Cutting and Sewing. The company uses the multiple production department...
The company has two departments – Cutting and Sewing. The company uses the multiple production department factory overhead rate method using direct labor hours. The budgeted factory overhead is $900,000 for the Cutting Department and $500,000 for the Sewing Department. The company plans to make 100,000 shirts and 50,000 pairs of pants. It takes 1 hour to cut and one hour to sew a shirt. It takes 1 hour to cut and 2 hours to sew a pair of pants. How many direct labor hours are being worked in each department? What is the factory overhead rate per direct labor hour for each department? Is it a better decision for the company to use the multiple production department factory overhead rate method rather than the single plantwide factory overhead rate?
Homework Answers
How many direct labor hours are being worked in each department?
| Total Units | Cutting | Sewing | |||
| Per unit | Total | Per unit | Total | ||
| Shirt | 100,000 | 1 | 100,000 | 1 | 100,000 |
| Pants | 50,000 | 1 | 50,000 | 2 | 100,000 |
| Total | 150,000 | 200,000 | |||
| Cutting | Sewing | |
| Total overhead | $ 900,000 | $ 500,000 |
| Total hours | 150,000 | 200,000 |
| Rate per hour | $ 6.00 | $ 2.50 |
If the company was using only single rate it would be (900,000 + 500,000) / (150,000 + 200,000) = $ 4 per hour
Based on the single rate, the allocation would have been very uneven since the number of hours differ in each department. It would have been $ 600,000 in Cutting and $ 800,000 in sewing which is inaccurate.
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The company has two departments – Cutting and Sewing. The
company uses the multiple production department...
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