Adirondak Marketing Inc. manufactures two products, A and B. Presently, the comp

Question

Adirondak 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. Overhead Total Direct Labor Hours DLH per Product A B Painting Dept. $250,000 10,000 16 4 Finishing Dept. 75,000 12,000 4 16 Totals $325,000 22,000 20 20 ======== ====== == == Calculate the overhead rate per unit for Product A in painting department: Select one: a. $236.32 per unit b. $325.00 per unit c. $147.70 per unit d. $161.00 per unit

Explanation / Answer

Here the company uses a single plantwide factory overhead rate. So the total overhead divided by total direct labour hours comes to overhead rate per hour.i.e

$325000/22000Hrs = $14.77 Overhead rate per hour (Step 1)

The total hours required to produce a product = 40 hours ( 20 hours in painting and 20 hours in finishing department) (Step - 2)

Overhead per product = $590.8 ( Step 1 * Step 2)

Now, the DLH required for a product A in painting department = 16 DLH

Therefore Overhead rate per unit for product A in painting department = ($590.8/40 DLH)*16 DLH = $236.32 Per Unit

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