Question

Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor-hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven manages Department SV and Charlene manages Department C. The product costs (per thousand gallons) follow.

	Strawberry			Vanilla			Chocolate
Direct labor (per 1,000 gallons)	$	768		$	843		$	1,143
Raw materials (per 1,000 gallons)		818			518			618

Required:

a. If the number of hours of labor per 1,000 gallons is 60 for strawberry, 70 for vanilla, and 100 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

b. Charlene's department uses older, outdated machines. She believes that her department is being allocated some of the overhead of Department SV, which recently bought state-of-the-art machines. After she requested that overhead costs be broken down by department, the following information was discovered:

	Department SV			Department C
Overhead	$	93,906		$	38,665
Machine-hours		25,380			37,800
Labor-hours		25,380			18,500

Using machine-hours as the department allocation base for Department SV and labor-hours as the department allocation base for Department C, compute the allocation rate for each.

c. Compute the cost of 1,000 gallons of each flavor of ice cream using the department allocation rates computed in requirement (b) if the number of machine-hours for 1,000 gallons of each of the three flavors of ice cream are as follows: strawberry, 60; vanilla, 70; and chocolate, 168. Direct labor-hours by product remain the same as in requirement (a).

Complete this question by entering your answers in the tabs below.

• Required A
• Required B
• Required C

If the number of hours of labor per 1,000 gallons is 60 for strawberry, 70 for vanilla, and 100 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation.

	Total Cost Strawberry Vanilla Chocolate

	Total Cost Strawberry Vanilla Chocolate

	Allocation Rate Department SV per machine hour Department C per labor hour

Answer 1

Solution

Main Street Ice Cream Company

Computation of total cost of 1,000 gallons of each flavor of ice cream using plantwide allocation rates:

Allocation of overhead at $3 per direct labor hours -
strawberry 60 hours at $3 = $180

Vanilla 70 hours at $3      = $210

Chocolate 100 at $3          = $300

a. Computation the allocation rate for each department:

Department SV allocation rate = $3.70 per machine hour

Department C allocation rate = $2.09 per labor hour

Computations:

Department SV – allocation basis – machine hours

Allocation rate = total cost/machine hours

Total cost = $93,906

Machine hours = 25,380

Allocation rate = $93,906/25,380 = $3.70 per machine hour

Department C – allocation basis – labor hours

Allocation rate = overhead cost/total labor hours

Overhead cost = $38,665

Labor hours = 18,500

Allocation rate = $38,665/18,500 = $2.09 per labor hour

Computation of cost of 1,000 gallons using the department overhead allocation rates computed above in b.;

Computations –

Department CV overhead allocated to each flavor as follows,

Allocated cost = allocation rate x machine hours used

Strawberry = $3.70 per MH x 60 = $222

Vanilla = $3.70 per MH x 70 MH = $259

Chocolate is not produced in department SV and hence no overhead of this department is allocated to Chocolate flavor.

Department C overhead allocated to each flavors is as follows,

Allocated cost = allocation rate x direct labor hours used

Strawberry and Vanilla are not produced in Department C, they are produced in department SV. Hence, no overhead of Department C is allocated to these two flavors.

Chocolate = $2.09 x 100 hours = $209