Question

Single Plantwide Factory Overhead Rate

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 $288,600.

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			320			990
Skim milk			350			900
Cream			280			370
			950			2,260
Packing Department
Whole milk			420			550
Skim milk			660			680
Cream			190			210
			1,270			1,440
	Total		2,220			3,700

Required:

1. Determine the single plantwide factory overhead rate, using each of the following allocation bases: (a) direct labor hours and (b) machine hours. If required, round all amounts to the nearest dollar.

a. Direct labor overhead rate	$ per direct labor hour
b. Machine hour overhead rate	$ per machine hour

2. Determine the product factory overhead costs, using (a) the direct labor hour plantwide factory overhead rate and (b) the machine hour plantwide factory overhead rate.

	Whole Milk	Skim Milk	Cream
Direct labor hours	$	$	$
Machine hours	$	$	$

Answer 1

1. Single plantwide factory overhead rate
a. Direct labor overhead rate     [Refer working note 1]	$130
b. Machine hour overhead rate   [Refer working note 1]	$78

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2. Product factory overhead cost
	Whole Milk	Skim Milk	Cream
Direct labor hours           [Refer working note 2]	$96,200	$131,300	$61,100
Machine hours                 [Refer working note 3]	$120,120	$123,240	$45,240

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Working note 1 - Computation of plant-wide overhead rate:
	Direct Labor Hours	Machine Hours
a. Budgeted / Estimated factory overhead	$288,600	$288,600
b. Total hours	2,220	3,700
Overhead rate [a / b]	$130	$78

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Working note 2 - Computation of product factory overhead cost using direct labor hour plant-wide overhead factory overhead rate
	Whole milk	Skim milk	Cream
Direct labor hours:
Blending Department      (a)	320	350	280
Packing Department       (b)	420	660	190
Total hours                     [c= a + b]	740	1010	470
Overhead rate based on direct labor hours     (d)      [Refer working note 1]	$130	$130	$130
Product overhead cost           [c x d]	$96,200	$131,300	$61,100

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Working note 3 - Computation of product factory overhead cost using direct machine hour plant-wide overhead factory overhead rate
	Whole milk	Skim milk	Cream
Machine hours:
Blending Department      (a)	990	900	370
Packing Department       (b)	550	680	210
Total hours                     [c= a + b]	1540	1580	580
Overhead rate based on machine hours     (d)      [Refer working note 1]	$78	$78	$78
Product overhead cost           [c x d]	$120,120	$123,240	$45,240