The Kaumajet Factory produces two products - table lamps and desk lamps. It has

Question

The Kaumajet Factory produces two products - table lamps and desk lamps. It has two separate departments - Finishing and Production. The overhead budget for the Finishing Department is $627,362, using 429,700 direct labor hours. The overhead budget for the Production Department is $318,544 using 68,800 direct labor hours.

If the budget estimates that a table lamp will require 2 hours of finishing and 5 hours of production, how much factory overhead will the Kaumajet Factory allocate to each unit of table lamp using the multiple production department factory overhead rate method with an allocation base of direct labor hours?

Explanation / Answer

The factory overhead rate for the Finishing Department = Overhead Budgeted / Budgeted Direct Labor Hours

= $ 627,362 / 429,700

= $ 1.46 per direct labor hour

The factory overhead rate for the Production Department = Overhead Budgeted / Budgeted Direct Labor Hours

= $ 318,544 / 68,800

= $ 4.63 per direct labor hour

The factory overhead allocated = The factory overhead rate for the Finishing Department * 2 Hours + The factory overhead rate for the Production Department * 5 Hours

= $ 1.46 per direct labor hour * 2 Hours+ $ 4.63 per direct labor hour * 5 Hours

= $ 26.07

Hence the correct answer is d. $ 26.07

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