Multiple Production Department Factory Overhead Rates

Spotted Cow Dairy Company manufactures three productsâwhole milk, skim milk, and creamâin two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $666,000. The three products consume both machine hours and direct labor hours in the two production departments as follows:

Direct Labor Hours Machine Hours
Blending Department
Whole milk 890 1,210
Skim milk 570 980
Cream 440 770
1,900 2,960
Packing Department
Whole milk 260 1,760
Skim milk 280 1,080
Cream 260 1,160
800 4,000
Total 2,700 6,960

The management of Spotted Cow Dairy Company now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows:

Blending Department $342,000
Department 324,000
Total $666,000

Determine the multiple production department factory overhead rates, using machine hours for the Blending Department and direct labor hours for the Packing Department.

total overhead costs for blending department = $342,000

total machine hours blending department = 2,960

overhead rate per machine hour = $342,000 / 2,960 hours = $115.5405405 per machine hour

total overhead costs for packaging department = $324,000

total direct labor hours packaging department = 800

overhead rate per direct labor hour = $324,000 / 800 hours = $405 per machine hour

product             blending department             packaging department

Whole milk       1,210 x $115.54 = $139,804     260 x $405 = $105,300

Skim milk          980 x $115.54 = $113,230       280 x $405 = $113,400

Cream               770 x $115.54 = $88,966       260 x $405 = $105,300

total                       $342,000                                 $324,000

total overhead rate assigned to each product:

product          blending dep.          packaging dep.           total

Whole milk       $139,804                   $105,300               $245,104

Skim milk          $113,230                    $113,400               $226,630

Cream               $88,966                    $105,300              $194,266  

total                 $342,000                   $324,000              $666,000

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