Multiple Production Department Factory Overhead Rates Spotted Cow Dairy Company

Question

Multiple Production Department Factory Overhead Rates

Spotted Cow Dairy Company manufactures three products—whole milk, skim milk, and cream—in two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $574,000.

The three products consume both machine hours and direct labor hours in the two production departments as follows:

The management of Spotted Cow Dairy Company now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows:

Required:

If required, round all amounts to the nearest dollar.

1. Determine the multiple production department factory overhead rates, using direct labor hours for the Blending Department and machine hours for the Packing Department.

2. Determine the product factory overhead costs, using the multiple production department rates in (1).

Feedback

1. Calculate for each department:
Total department overhead ÷ total activity base = Department rate

2. Calculate for each product:
Activity base-usage x Activity Rate from Req. (1) = Activity cost for each activity.
Then sum all activity costs per product to determine a total overhead for each product.

Direct Labor Hours Machine Hours Blending Department Whole milk 710 960 Skim milk 450 770 Cream 340 610 1,500 2,340 Packing Department Whole milk 210 1,540 Skim milk 220 950 Cream 200 1,010 630 3,500 Total 2,130 5,840

Explanation / Answer

1.

2.

Blending department $210 per direct labor hour ($315000/1500) Packing department $74 per machine hour ($259000/3500)

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