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.Moccasins $Handbags $

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Handbags = 60,000 units, 3 hours of direct labor

Moccasins= 40,000 units, 2 hours of direct labor

Total Budgeted factory overhead cost = $360,000

Cutting:

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.

Sewing:

The Sewing Department estimates factory overhead for $280,000. Handbags require 2 hours of sewing time and Moccasins require 1 hour for a total of 160,000 labor hours.

First, we will calculate the predetermined overhead rate for each department.

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

Cutting:

Estimated manufacturing overhead rate= 80,000/100,000= $0.8 per direct labor hour

Sewing:

Estimated manufacturing overhead rate= 280,000/160,000= $1.75 per direct labor hour.

Now, we can allocate the overhead based on direct labor hours:

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

Handbags:

Cutting= 60,000 units* 1 hour= 60,000 hours

Sewing= 60,000 units* 2 hour= 120,000 hours

Allocated MOH= 60,000*$0.8 + 120,000*1.75= $258,000

Mocassins:

Cutting= 40,000 units* 1 hour= 40,000 hours

Sewing= 40,000 units* 1 hour= 40,000 hours

Allocated MOH= 40,000* 0.8 + 40,000*1.75= $102,000