Morton Manufacturing allocates factory overhead using one cost pool with direct
ID: 2338696 • Letter: M
Question
Morton Manufacturing allocates factory overhead using one cost pool with direct labor hours as the allocation base. Morton has two production departments, P1 and P2. The new accountant at Morton estimates that next year, the total factory overhead costs will be $5,000,000, and approximately 500,000 direct labor hours will be worked. The accountant also estimates that P1 will use 200,000 direct labor hours, and there will be about $3,000,000 in overhead costs in P1. P2 will use 300,000 direct labor hours, and there will be $2,000,000 in overhead costs in P2. Morton has two products, A1 and B1. It takes 2 direct labor hours in P1 and 3 direct labor hours in P2 to complete one unit of A1. It takes 1 direct labor hour in P1 and 4 direct labor hours in P2 to complete one unit of B1.
Allocate overhead to each product using the following: (Round answers to 2 decimal places, e.g. 15.25.)
pool for each department A1 $_____ per unit $_____ per unit B1 $_____ per unit $_____ per unit
Explanation / Answer
Answers
A
Total Factory Overhead
$ 5,000,000.00
B
Total Direct Labor hours
500,000
C = A/B
Overhead rate per DLH
$ 10.00
DLHs used by A1:
in P1
2
in P2
3
D
Total DLHs for A1
5
E = C x D
Overhead cost per unit
$ 50.00
DLHs used by B1:
in P1
1
in P2
4
F
Total DLHs for A1
5
G = C x F
Overhead cost per unit
$ 50.00
Working
P1
P2
A
Total Overhead
$ 3,000,000.00
$ 2,000,000.00
B
Total no. of DLHs
200,000
300,000
C = A/B
Separate Overhead rate per DLH
$ 15.00
$ 6.67
D
No. of hours used by A1
2
3
E = C x D
Overhead cost allocated to A1
$ 30.00
$ 20.01
F
No. of hours used by B1
1
4
G = C x F
Overhead cost allocated to B1
$ 15.00
$ 26.68
One Cost Pool System
Separate Overhead Cost pool for each department
A1
$ 50 per unit
$ 50.01 or $ 50 if not rounded off
B1
$ 50 per unit
$ 41.68 or $ 41.67 if not rounded off
A
Total Factory Overhead
$ 5,000,000.00
B
Total Direct Labor hours
500,000
C = A/B
Overhead rate per DLH
$ 10.00
DLHs used by A1:
in P1
2
in P2
3
D
Total DLHs for A1
5
E = C x D
Overhead cost per unit
$ 50.00
DLHs used by B1:
in P1
1
in P2
4
F
Total DLHs for A1
5
G = C x F
Overhead cost per unit
$ 50.00
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