Question

The Nite Lite Factory produces two products - small lamps and desk lamps. It has two separate departments - finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a desk lamp will require 2 hours of finishing and 1 hour of production, how much factory overhead will be allocated to each unit of desk lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours

Answer 1

$11.1

Step-by-step explanation:

We can calculate the factory overhead allocated to a unit using multiple department factory overhead rate methods with an allocation base of direct labor hours. In this method, we will divide the te total overhead cost in direct labor hours consumed in that department.

Solution

Direct Labor Overhead rate for Finishing = $550,000/500,000

Direct Labor Overhead rate for Finishing = $1.10 per hour

Direct Labor Overhead rate for Production = $400,000/80,000

Direct Labor Overhead rate for Production = $5

Overhead for DeskLamps = (Direct labor hours in Finishing x Direct Labor Overhead rate for Finishing + Direct Labor hours in Production x Direct Labor Overhead rate for Production)

Overhead for DeskLamps= (1x$1.10 + 2x$5)

Overhead for DeskLamps= $11.1