Stewart Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plant-wide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. From the following information, using a single plant-wide rate, determine the overhead rate per unit for Product A: Overhead Direct Labor Product
Hours (dlh) 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

a. $496.00 per unit
b. $320.00 per unit
c. $144.00 per unit
d. $640.00 per unit

Allocated MOH= $320

Explanation:

Giving the following information:

Overhead Direct Labor Product

Hours (dlh) 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

First, we need to calculate the plantwide overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 320,000 / 20,000

Predetermined manufacturing overhead rate= $16 per direct labor hour

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 16*20

Allocated MOH= $320