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. Product A B 13 dih Direct Labor Hours (dlh) 8,800 dih 6,300 15,100 dlh Painting Dept. Finishing Dept. 7 dlh Overhead $267,300 77,900 $345,200 7 18 Totals 20 dih 25 dih Determine the overhead in the Painting Department for each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system. Oa. $212.66 per unit Ob. $160.03 per unit Oc. $86.56 per unit Od. $30.38 per unit

Answer 1

Multiple department rate system:

Painting department overhead cost : $ 267,300

Total direct labour hour for painting department = 8800 dlh

per labour hour cost for each department = 267,300/8,800 = $ 30.38/hour

Each product B requires 7 dlh for painting.

So, overhead in painting department for product B = 30.38 * 7/dlh = $ 212.66

Hence, option a is correct.