Question

Smelly Perfume Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour. Cindy is the department manager of Department C which produces Products J and P. Department C has $16,200 in traceable overhead. Diane is the department manager of Department D which manufactures Product X. Department D has $11,100 in traceable overhead. The product costs (per case of 24 bottles) and other information are as follows:

J P X
Direct materials $100.00 $ 72.00 $48.00
Direct labor 42.00 31.50 12.00
Overhead 28.00 21.00 14.00
$170.00 $124.50 $74.00
Machine hours 4 2 3
Number of cases (per year) 300 500 600

1. If Smelly changes its allocation basis to machine hours, what is the total product cost per case for Product P?

a. $163.50
b. $144.00
c. $138.15
d. $117.15

2. If Smelly changes its overhead allocation to departmental rates, what is the product cost per case for Product P assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?

a. $117.15
b. $163.50
c. $131.50
d. $138.15

Answer 1

Smelly Perfume Company

1. a. $117.15

2. $115.95

Step-by-step explanation:

a) Data and Calculations:

J P X Total

Direct materials $100.00 $ 72.00 $48.00

Direct labor 42.00 31.50 12.00

Overhead 28.00 21.00 14.00

$170.00 $124.50 $74.00

Direct labor hours per unit 4 3 2

Total direct labor hours 1,200 1,500 1,200 3,900

Machine hours per unit 4 2 3

Total machine hours 1,200 1,000 1,800 4,000

Number of cases (per year) 300 500 600

Department C D Total

Traceable overheads $16,200 $11,100 $27,300

Product costs (machine hours):

Predetermined overhead rate based on machine hours = $6.825 ($27,200/4,000) per machine hour

J P X

Direct materials $100.00 $ 72.00 $48.00

Direct labor 42.00 31.50 12.00

Overhead (machine hour) 27.30 13.65 20.48

$169.30 $117.15 $80.48

Product costs (departmental overhead rates):

Departmental overhead rates per hour:

Department C $4.15 ($16,200/3,900) per labor hour

Department D $2.78 ($11,100/4,000) per machine hour

J P X

Direct materials $100.00 $ 72.00 $48.00

Direct labor 42.00 31.50 12.00

Overhead 16.60 12.45 8.34

$158.60 $115.95 $68.34