Single Plantwide Factory Overhead Rate
Spotted Cow Dairy Company manufactures three products—whole milk, skim milk, and cream—in two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $241,500.
The three products consume both machine hours and direct labor hours in the two production departments as follows:
Direct Labor Hours | Machine Hours | ||||||
Blending Department | |||||||
Whole milk | 220 | 620 | |||||
Skim milk | 240 | 560 | |||||
Cream | 200 | 220 | |||||
660 | 1,400 | ||||||
Packing Department | |||||||
Whole milk | 310 | 340 | |||||
Skim milk | 490 | 420 | |||||
Cream | 150 | 140 | |||||
950 | 900 | ||||||
Total | 1,610 | 2,300 |
Required:
1. Determine the single plantwide factory overhead rate, using each of the following allocation bases: (a) direct labor hours and (b) machine hours. If required, round all amounts to the nearest dollar.
a. Direct labor overhead rate | $ per direct labor hour |
b. Machine hour overhead rate | $ per machine hour |
2. Determine the product factory overhead costs, using (a) the direct labor hour plantwide factory overhead rate and (b) the machine hour plantwide factory overhead rate.
Whole Milk | Skim Milk | Cream | |
Direct labor hours | $ | $ | $ |
Machine hours | $ | $ | $ |
Multiple Production Department Factory Overhead Rates
Spotted Cow Dairy Company manufactures three products—whole milk, skim milk, and cream—in two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $496,400.
The three products consume both machine hours and direct labor hours in the two production departments as follows:
Direct Labor Hours | Machine Hours | ||||||
Blending Department | |||||||
Whole milk | 610 | 830 | |||||
Skim milk | 390 | 670 | |||||
Cream | 300 | 530 | |||||
1,300 | 2,030 | ||||||
Packing Department | |||||||
Whole milk | 180 | 1,280 | |||||
Skim milk | 190 | 780 | |||||
Cream | 175 | 840 | |||||
545 | 2,900 | ||||||
Total | 1,845 | 4,930 |
The management of Spotted Cow Dairy Company now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows:
Blending Department | $247,000 | |
Packing Department | 249,400 | |
Total | $496,400 |
Required:
If required, round all amounts to the nearest dollar.
1. Determine the multiple production department factory overhead rates, using direct labor hours for the Blending Department and machine hours for the Packing Department.
Blending Department | $ per direct labor hour |
Packing Department | $ per machine hour |
2. Determine the product factory overhead costs, using the multiple production department rates in (1).
Whole milk | Skim milk | Cream | |||
Blending Department factory overhead | $ | $ | $ | ||
Packing Department factory overhead | |||||
Total factory overhead | $ | $ | $ |
Allocating Selling and Administrative Expenses using Activity-Based Costing
Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows:
Price | $720 | per unit |
Cost of goods sold | 430 | |
Gross profit | $290 | per unit |
In addition, the company incurs selling and administrative expenses of $279,440. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related to its three major nonmanufacturing activities: customer service, sales order processing, and advertising support. The advertising support is in the form of advertisements that are placed by Shrute Inc. to support the retailer's sale of Shrute copiers to consumers. The budgeted activity costs and activity bases associated with these activities are:
Activity | Budgeted Activity Cost | Activity Base | |||
Customer service | $35,760 | Number of service requests | |||
Sales order processing | 22,680 | Number of sales orders | |||
Advertising support | 221,000 | Number of ads placed | |||
Total activity cost | $279,440 |
Activity-base usage and unit volume information for the three customers is as follows:
The Warehouse | Kosmo Co. | Supply Universe | Total | ||||||
Number of service requests | 50 | 10 | 180 | 240 | |||||
Number of sales orders | 240 | 100 | 500 | 840 | |||||
Number of ads placed | 20 | 20 | 130 | 170 | |||||
Unit volume | 640 | 640 | 640 | 1,920 |
Required:
1. Determine the activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar.
Activity Rate | ||
Customer Service | $ | per serv. req. |
Sales Order Processing | $ | per bid |
Advertising Support | $ | per customer design change |
2. Determine the activity costs allocated to the three customers, using the activity rates in (1).
Activity Costs | |
The Warehouse | $ |
Kosmo Co. | $ |
Supply Universe | $ |
3. Construct customer profitability reports for the three customers, dated for the year ended December 31, 2016, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer. Enter all amounts as positive numbers, except for a negative income from operations.
Shrute Inc. | |||
Customer Profitability Report | |||
For the Year Ended December 31 | |||
The Warehouse | Kosmo Co. | Supply Universe | |
Revenues | $ | $ | $ |
Cost of goods sold | |||
Gross profit | $ | $ | $ |
Selling and administrative activities: | |||
Customer service | $ | $ | $ |
Sales order processing | |||
Advertising support | |||
Total selling and administrative activities | $ | ||
Income (loss) from operations | $ | $ | $ |
Solution:
Problem 1 --
Part 1(a) – Calculation of Single Plantwide Factory Overhead Rate using allocation base Direct labor hours
Total Factory Overhead Costs (A) |
$241,500 |
|
Total Direct labor hours (Blending + Packing Department) (B) |
1610 |
Hours |
Direct Labor Overhead Rate (A / B) |
$150 |
Per direct labor hour |
Part 1(b) – Calculation of Single Plantwide Factory Overhead Rate using allocation base Machine hours
Total Factory Overhead Costs (A) |
$241,500 |
|
Total Machine Hours (Blending + Packing Department) (B) |
2300 |
hours |
Machine Hour Overhead Rate (A / B) |
$105 |
per machine hour |
Part 2(a) – Product factory overhead cost using direct labor hour plantwide factory overhead rate
Whole Milk |
Skim Milk |
Cream |
|
Direct Labor Hours Used |
|||
- In Blending Department |
220 |
240 |
200 |
- In Packing Department |
310 |
490 |
150 |
Total Direct Labor Hours Used (A) |
530 |
730 |
350 |
Direct Labor Overhead Rate (Refer Part 1(a) (B) |
$150 |
$150 |
$150 |
Product factory Overhead Costs (A * B) |
$79,500 |
$109,500 |
$52,500 |
Part 2(b) – Product factory overhead cost using machine hour plantwide factory overhead rate
Whole Milk |
Skim Milk |
Cream |
|
Machine Hours Used |
|||
- In Blending Department |
620 |
560 |
220 |
- In Packing Department |
340 |
420 |
140 |
Total Machine Hours Used (A) |
960 |
980 |
360 |
Machine Overhead Rate (Refer Part 1(b) (B) |
$105 |
$105 |
$105 |
Product factory Overhead Costs (A * B) |
$100,800 |
$102,900 |
$37,800 |
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Pls ask separate question for remaining parts
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