X Company is considering switching to a departmental allocation system. It has two departments, and would...

X Company is considering switching to a departmental allocation system. It has two departments, and would use direct labor hours as the cost driver in Department 1 and machine hours as the cost driver in Department 2. The following are budgeted costs and driver amounts for these two departments in 2017: Department 1 Department 2 Direct materials $16,700 $47,200 Direct labor $640,000 $640,000 Overhead $110,000 $88,000 Direct labor hours 40,000 40,000 Machine hours 100,000 130,000 Assume the following information for Product B in 2017: Department 1 Department 2 Direct materials $835 $4,720 Direct labor $14,352 $2,288 Direct labor hours 897 143 Machine hours 1,070 850 4. If X Company had used the departmental system, how much overhead would have been allocated to Product B [round overhead rate(s) to two decimal places]?

Solutions

Expert Solution

Calculation of overhead allocated to Product B:

Depatment 1:
Predetermined overhead rate= Estimated overhead/ estimated direct labour hours
= 110000/40000 = $2.75 per direct labour hour

Overhead of department 1 allocated to product B= predetermined overhead rate* direct
labour hours of department1 of product B= 2.75* 897 = $2466.75

Overhead of department 1 allocated to product B is $2466.75

Depatment 2:
Predetermined overhead rate= Estimated overhead/ estimated machine hours
= 88000/130000= $0.677 per machine hour

Overhead of department 2 allocated to product B= predetermined overhead rate* machine
hours of department2 of product B= 0.677*850 = $575.45

Overhead of department 2 allocated to product B is $575.45

Therefore total overhead allocated to product B= 2466.75+575.45= $3042.20

ekkarill92 answered 10 months ago

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