X Company has two production departments, X and Y. Listed below are budgeted inf

Question

X Company has two production departments, X and Y. Listed below are budgeted information for the two departments, and actual information for one of its products, Product 1:

1. Using a plantwide allocation system with direct labor hours as the cost driver, what was the allocation to Product 1 [round overhead rates to the nearest cent]?

2. Using a departmental allocation system with machine hours as the cost driver in Department X and direct labor hours as the cost driver in Department Y, what was the allocation to Product 1 [round overhead rates to the nearest cent]?

Department X All Products Product 1    Overhead $5,900,000    -          Direct labor $600,000    $11,280        Direct labor hours 40,000    752        Machine hours 120,000    1,070        Units produced 60,000    790     Department Y    Overhead $2,200,000    -          Direct labor $750,000    $3,975        Direct labor hours 50,000    265        Machine hours 120,000    800        Units produced 37,000    790    

Explanation / Answer

1.

Total Overheads for all products = 5900000+2200000 = 8100000

Total Time for All products = 120000+120000 =240000

Total Time for Product 1 = 1070+800 = 1870

Allocation to Product 1 = 1870/240000 = 0.78%

2)

Total Overheads for Department X = 5900000

Total Time for Department X = 120000

Total time for Product 1 in Dep X = 1070

Allocation to Dept X = 1070/120000 = 0.89%

Total Overheads for Department Y = 2200000

Total Time for Department Y = 120000

Total time for Product 1 in Dep X = 800

Allocation to Dept X = 800/120000 = 0.67%

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