Question

The total factory overhead for the Brandon Motorboat Company is budgeted for the year at $600,000 divided into two departments: Fabrication, $420,000, and Assembly, $180,000. The company makes two types of boats: speedboats and bass boats. The speedboats require 8 direct labor hours in Fabrication and 4 direct labor hours in Assembly. The bass boats require 4 direct labor hours in Fabrication and 8 direct labor hours in Assembly. Each product is budgeted for 250 units of production for the year. Determine the following (a) the total number of budgeted direct labor hours for the year in each department (b) the departmental factory overhead rates for both departments (c) the factory overhead allocated per unit for each product using department factory overhead allocation rates.

Answer 1

(A)

DEPARTMENT: FABRICATION

For Speedboat,

Direct labor hours = 250 x 8 = 2000 hours

For Bass boat,

Direct labor hours = 250 x 4 = 1000 hours

Therefore,

Total direct labor hours = 2000 + 1000 = 3000 hours

DEPARTMENT: ASSEMBLY

For Speedboat,

Direct labor hours = 250 x 4 = 1000 hours

For Bass boat,

Direct labor hours = 250 x 8 = 2000 hours

Therefore,

Total direct labor hours = 1000 + 2000 = 3000 hours

(B)

Departmental factory overhead rate = total factory overhead cost/total direct labor hours

FOR FABRICATION DEPARTMENT:

Departmental factory overhead rate = $420000/3000 = $140 per hour

FOR ASSEMBLY DEPARTMENT:

Departmental factory overhead rate = $180000/3000 = $60 per hour

(C)

For Speedboat:

Factory overhead allocated per unit = (8 hours x $140) + (4 hours x $60)

= $1120 + $240 = $1360

For Bass boat:

Factory overhead allocated per unit = (4 hours x $140) + (8 hours x $60)

= $560 + $480 = $1040