Question

The Anazi Leather Company manufactures leather handbags (H) and moccasins (M). The company has been using the factory overhead rate method but has decided to evaluate the multiple production department factory overhead rate to allocate factory overhead. The factory overhead estimated per unit together with direct materials and direct labor will help determine selling prices.Handbags = 60,000 units, 3 hours of direct laborMoccasins= 40,000 units, 2 hours of direct laborTotal Budgeted factory overhead cost = $360,000The company has two different production departments: Cutting and Sewing. The cutting department has a factory overhead budget of $80,000. Each unit will require 1 direct labor hour or a total of 100,000 direct labor hours.The Sewing Department estimates factory overhead in the amount of $280,000. Handbags require 2 hours of sewing time and Moccasins require 1 hour for a total of 160,000 labor hours.Calculate the amount of factory overhead to be allocated to each unit using direct labor hours.

Answer 1

Answer:

The amount of factory overhead to be allocated to each unit using direct labor hours.

Handbag =  $4.3 / unit

Moccasins =  $2.55 / unit

Explanation:

Predetermined Overheads rate

Cutting  = 80,000 / 100,000 = $0.8 / labor hour

Sewing  = 280,000 / 160,000 = $1.75 / labor hour

Overheads Allocation

Handbag

Cutting = 1 x 0.8 = $0.8

Sewing = 2 x 1.75 = $3.5

Total Per unit overhead allocation = 0.8+3.5 = $4.3 / unit

Moccasins

Cutting = 1 x 0.8 = $0.8

Sewing = 1 x 1.75 = $1.75

Total Per unit overhead allocation = 0.8+1.75 = $2.55 / unit