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 $496,400.

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

		Direct Labor Hours			Machine Hours
Blending Department
Whole milk			610			830
Skim milk			390			670
Cream			300			530
			1,300			2,030
Packing Department
Whole milk			180			1,280
Skim milk			190			780
Cream			175			840
			545			2,900
	Total		1,845			4,930

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:

Blending Department	$247,000
Packing Department	249,400
Total	$496,400

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.

Blending Department	$ per direct labor hour
Packing Department	$ per machine hour

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

	Whole milk		Skim milk		Cream
Blending Department factory overhead	$		$		$
Packing Department factory overhead
Total factory overhead	$		$		$

Answer 1

Solution:

Part 1 – Factory Overhead Rate

Blending Department (refer below calculation)	$190 per direct labor hour
Packing Department (refer below calculation)	$86 per machine hour

Factory Overhead Rate for Blending Department using direct labor hours

	Blending Department
Total Factory Overhead Costs	$247,000
Total Direct Labor Hours	1300	hours
Factory Overhead Rate per direct labor hour	$190.00	per direct labor hour

Factory Overhead Rate for Packing Department using machine hours

	Packing Department
Total Factory Overhead Costs	$249,400
Total Machine Hours related to Packing Dept	2900	hours
Factory Overhead Rate per machine hour	$86.00	per machine hour

Part 2 – Calculation of product factory overhead costs

	Whole milk	Skim milk	Cream
Blending Department factory overhead (Refer calculation below)	$115,900	$74,100	$57,000
Packing Department factory overhead (refer below calculation)	$110,080	$67,080	$72,240
Total factory overhead	$225,980	$141,180	$129,240

Product factory overhead cost for Blending Dept using overhead rate per direct labor hour

	Whole Milk	Skin Milk	Cream
Direct labor hours used	610	390	300
Blending Department factory Overhead Rate per direct labor hour	$190	$190	$190
Total Allocated factory overhead in Blending Department	$115,900	$74,100	$57,000

Product factory overhead cost for Packing Dept using overhead rate per machine hour

	Whole Milk	Skin Milk	Cream
Machine Hours Used	1280	780	840
Packing Department factory Overhead Rate per machine hour	$86	$86	$86
Total Allocated factory overhead in Packing department	$110,080	$67,080	$72,240

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