Multiple Production Department Factory Overhead Rates

Spotted Cow Dairy Company manufactures three productswhole milk, skim milk, and creamin two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $332,000.

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			560			770
Skim milk			360			620
Cream			280			480
			1,200			1,870
Packing Department
Whole milk			170			1,100
Skim milk			180			680
Cream			155			720
			505			2,500
	Total		1,705			4,370

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	$192,000
Packing Department	140,000
Total	$332,000

Required:

If required, round all amounts to the nearest dollar.

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

Blending Department	$ per direct labor hour
Packing Department	$ per machine hour

2. Determine the product factory overhead costs, using the multiple production department rates in (1).

	Whole milk		Skim milk		Cream
Blending Department factory overhead	$		$		$
Packing Department factory overhead
Total factory overhead	$		$		$

Feedback

1. Calculate for each department: Total department overhead total activity base = Department rate

2. Calculate for each product: Activity base-usage x Activity Rate from Req. (1) = Activity cost for each activity. Then sum all activity costs per product to determine a total overhead for each product.

Learning Objective 3.