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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.	$248,000	10,000 dlh	16 dlh	4 dlh
Finishing Dept.	72,000	10,000	4	16
Totals	$320,000	20,000 dlh	20 dlh	20 dlh

Determine the overhead from both production departments allocated to each unit of Product B if Blue Ridge Marketing Inc. uses a multiple department rate system.

a. $214.40 per unit

b. $320.00 per unit

c. $115.20 per unit

d. $425.60 per unit

Answer 1

	The company is looking for shifting from single plantwide overhead rate to multiple overhead rate system.
	So we have to calculate overhead rate for each department separately
	Painting Dept.
a	Overhead	$248,000
b	Direct labor hours	10,000 hours
	Overhead Rate(a/b)	$24.80
	Finishing Dept.
c	Overhead	$72,000
d	Direct labor hours	10,000 hours
	Overhead Rate(c/d)	$7.20
	Overhead Allocation for Product B
		Labor Hours	Overhead Rate	Overhead
	Painting Dept.	4 hours	$24.80	$99.20
	Finishing Dept.	16 hours	$7.20	$115.20
	Total Overhead			$214.40
	So Option a $214.40 per unit is correct