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

The factory overhead allocated per unit of Product A in the Finishing Department if Blue Ridge Marketing Inc. uses the multiple production department factory overhead rate method is

Question

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

The factory overhead allocated per unit of Product A in the Finishing Department if Blue Ridge Marketing Inc. uses the multiple production department factory overhead rate method is

BlackTom AI · Accepted Answer

Departmental overhead rate = Department overhead ÷ Department allocation base (direct labor hours). Apply this to the Finishing Department and then multiply by the direct labor hours per unit of Product A in that department.

1) Relevant knowledge points and concepts
- Multiple production-department overhead allocation uses a separate overhead rate for each department.
- Department rate = Department estimated overhead ÷ Department estimated activity (here, direct labor hours).
- Overhead assigned to a product in a department = Department rate × direct labor hours that product uses in that department.

2) Step-by-step reasoning
- Use the Finishing Department figures (because the question asks for overhead per unit of Product A in the Finishing Department under the multiple-department method).
- Finishing Dept overhead (estimated) = $72,000.
- Finishing Dept total direct labor hours = 10,000 dlh.
- Product A uses 4 dlh in the Finishing Dept (given).

3) Calculations (all intermediate steps)
- Finishing Dept overhead rate = $72,000 ÷ 10,000 dlh
  = $7.20 per direct labor hour.
- Overhead allocated to one unit of Product A in Finishing Dept = $7.20 per dlh × 4 dlh
  = $28.80 per unit.

4) Why the correct answer is correct
- The calculation uses the departmental overhead and the department’s activity base only (as required by the multiple-department rate method). Multiplying the department rate by the product’s hours in that department yields the overhead per unit for that department, which is $28.80.

5) Why the other options are incorrect
- $99.20, $49.60, and $64.00 are inconsistent with the Finishing Dept rate and Product A’s 4 dlh. They would result from using incorrect department totals, wrong hours, or combining departments (or miscalculating the rate). None match the correct department rate × 4 dlh computation.

6) Conclusion
- The factory overhead allocated per unit of Product A in the Finishing Department under the multiple production-department rate method is $28.80 per unit, which matches the provided answer.

Similar Questions

Which of the following would be inappropriate as an allocation base for calculating factory overhead rates?

Which of the following are actual factory overhead allocation methods?

Using multiple department factory overhead rates instead of a single plantwide factory overhead rate

Overhead costs are assigned to each product based on ________.

Assigning indirect costs to specific jobs is completed by which of the following?

What is the most practical way of disposing of the over or under applied overhead?

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