Question

Blue Ridge 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. The following table presents information about estimated overhead and direct labor hours.

	Overhead		Direct Labor Hours (dlh)			Product
						A		B
Painting Dept.	$248,200		11,600	dlh		15	dlh	4	dlh
Finishing Dept.	74,800		8,100			2		18
Totals	$323,000		19,700	dlh		17	dlh	22	dlh

Determine the overhead in the Painting Department for each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system.

a. $21.40 per unit

b. $85.60 per unit

c. $36.94 per unit

d. $65.58 per unit

Answer 1

Ans:

Option b $85.60 per unit

Working:

	Overheads	Direct Labor Hours	Overhead per DLH
Painting Department	$248,200	11,600	$21.40
Fishing Department	$74,800	8,100	$9.23

Hence overhead for each unit of Product B in Painting Department

($21.4*4 hours)

=$85.60 per unit