Question

Aleutian Company produces two products: Rings and Dings. They are manufactured in two departments: Fabrication and Assembly. Data for the products and departments are listed below.

Product	Number of Units	Direct Labor Hours per Unit	Machine Hours per Unit
Rings	1,000	4	6
Dings	2,000	3	9

All of the machine hours take place in the Fabrication Department, which has estimated total factory overhead of $90,000. All of the labor hours take place in the Assembly Department, which has estimated total factory overhead of $105,000.

Aleutian Company uses the multiple production department factory overhead rate method. The Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours.

The total factory overhead allocated per unit of Rings is

a.$44.10

b.$23.25

c.$65.25

d.$64.50

Answer 1

Option D i.e. $64.50 is the correct answer.

Explanation:

Computation of total factory overhead allocated per unit of Rings:

As given in the question the Fabrication Department uses machine hours as an allocation base, and the Assembly Department uses direct labor hours.

Total Machine Hours used = Machine Hours used by Rings + Machine Hours used by Dings

Total Machine Hours used = (1,000 units * 6) + (2,000 units * 9) = 6,000 + 18,000 = 24,000

Fabrication Department Overheads Allocated to Ring = Total Fabrication Department Overheads / Total Machine Hours used * Machine Hours used by Rings = $90,000 / 24,000 * 6,000 =  $22,500

Fabrication Department Overheads Allocated to per unit of Ring = $22,500 / 1,000 units = $22.50

Now,

Labor Hours used = Labor Hours used by Rings + Labor Hours used by Dings

Total Labor Hours used = (1,000 units * 4) + (2,000 units * 3) = 4,000 + 6,000 = 10,000

Assembly Department Overheads Allocated to Ring = Total Assembly Department Overheads / Total Labor Hours used * Labor Hours used by Rings = $105,000 / 10,000 * 4,000 =  $42,000

Assembly Department Overheads Allocated to per unit of Ring = $42,000 / 1,000 units = $42.00

Hence, total factory overhead allocated per unit of Rings =  Fabrication Department Overheads Allocated to per unit of Ring + Assembly Department Overheads Allocated to per unit of Ring

= $22.50 + $42 = $64.50