Question

Calculator Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. Overhead Direct Labor Hours (dlh) Product A B Painting Dept. $248,000 10,000 dlh 16 dlh 4 dlh Finishing Dept. 72,000 10,000 4 16 Totals $320,000 20,000 dlh 20 dlh 20 dlh Using a single plantwide rate, determine the overhead rate per unit for Blue Ridge Marketing Inc.'s Product B. a. $320.00 b. $640.00 c. $496.00 d. $144.00

1. Calculator

   The Ramapo Company produces two products, Blinks and Dinks. They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below.
   

   Product	Number of units	Labor hours per unit	Machine hours per unit
   Blinks	1,000	4	5
   Dinks	2,000	2	8

   
   All of the machine hours take place in the Fabrication department, which has an estimated overhead of $84,000. All of the labor hours take place in the Assembly department, which has an estimated total overhead of $72,000.
   
   The Ramapo Company uses a single overhead rate to apply all overhead costs based on labor hours. What is the overhead cost per unit for Blinks?

   a.$19.50

   b.$78.00

   c.$56.00

   d.$37.45

Answer 1

(a)

Single plantwide Overhead rate              = Total overhead Costs / Total direct labour hours              =   $ 320,000 / 20,000 DLH              =    $ 16 per DLH

Overhead rate per unit for Blue Ridge Marketing Inc.'s Product                     = Single plantwide Overhead rate x hours Allocated to B                     =   $ 16 x 20 DLH                     =    $ 320

Option (a) is Correct

(b)

Single plantwide Overhead rate              = Total overhead Costs / Total direct labour hours              =    ($ 84,000 + $ 72,000 ) / (1,000 x 4 + 2,000 x 2)              =    $ 156,000 / 8,000              =   $ 19.50

Overhead cost per unit for Blinks            = Single plantwide Overhead rate x Labor Hours per unit of Blinks            =   $ 19.50 x 4            =   $ 78

Option (b) is Correct