Question

The Kaumajet Factory produces two products - table lamps and desk lamps. It has two separate departments - Finishing and Production. The overhead budget for the Finishing Department is $700,050, using 359,000 direct labor hours. The overhead budget for the Production Department is $330,546 using 61,900 direct labor hours.

If the budget estimates that a desk lamp will require 5 hours of finishing and 8 hours of production, what is the total amount of factory overhead the Kaumajet Factory will allocate to desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours, if 10,000 units are produced?

a.$318,312

b.$166,480

c.$53,400

d.$524,700

Answer 1

Answer: D. $524,700

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Computation of overhead allocated to desk lamps:
Finishing Department
Departmental overhead rate        [Refer working note 1]                           (a)	$1.95
Direct labor hours required                                                                        (b)	5
Overhead cost of finishing department allocated to desk lamps                (c = a x b)		$9.75
Production department
Departmental overhead rate        [Refer working note 1]                           (d)	5.34
Direct labor hours required                                                                        (e)	$8
Overhead cost of finishing department allocated to desk lamps                (f = d x e)		$42.72
Total overhead allocated per unit                                                              (g = c + f)		$52.47
Number of units produced                                                                           (h)		10000
Overhead allocated to desk lamp if 10,000 units are produced                   (g x h)		$524,700

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Working note - Computation of departmental factory overhead rate:
	Finishing Department	Production department
Budgeted / Estimated factory overhead    (a)	$700,050	$330,546
Estimated direct labor hours                    (b)	359,000	61,900
Overhead rate                                       (a / b)	$1.95	$5.34