Question

Murphy company has three departments, and uses a multiple predetermined overhead rate system. Department A manufactures parts in a highly automated process, then Department B assembles the parts by hand. Department C places completed units in a heat chamber to sterilize the before they are shipped out. Match each department with an appropriate overhead allocation rate.
1. Department A
2. Department B
3. Department C

a. Direct labor hours
b. Machine hours
c. Batches

Answer 1

Answer:

1. Department A  (manufactures parts in a highly automated process): Machine hours

2. Department B  (assembles the parts by hand): Direct labor hours

3. Department C (places completed units in a heat chamber to sterilize the before they are shipped out): Batches

Explanation:

Machine hours is used to measure factory overhead as against the goods produced. This method is usually applied in production environment using machine, and where the most activities are done by machines.  On the other hand direct labor is used when the production of goods and services is done by human hands, and not machines. While Machine hours is the appropriate overhead allocation rate for Department A, Direct Labor hours will be appropriate for Department B. Hence Batches will be appropriate for Department C.