Smelly Perfume Company manufactures and distributes several different products.

Question

Smelly Perfume Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $8 per direct labor hour. Cindy is the department manager of Department C which produces Products J and P. Department C has $16,800 in traceable overhead. Diane is the department manager of Department D which manufactures Product X. Department D has $8,100 in traceable overhead. The product costs (per case of 24 bottles) and other information are as follows:

If Smelly changes its overhead allocation to departmental rates, what is the product cost per case for Product X assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

$68.50.

$69.99.

$57.00.

$67.50.

Products J P X   Direct materials $90.00 $ 65.00 $43.00   Direct labor 38.00 28.35 11.00   Overhead 18.00 15.00 14.00 $146.00 $108.35 $68.00   Machine hours (per case) 4 2 3   Number of cases (per year) 300 500 600

Explanation / Answer

Dept D => 8100 / (3*600) => 4.5/MH

Cost of Product X=> 43 +11 + (4.5 * 3) => $67.50

The product cost per case for Product X => $67.50

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