Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours. Determine the overhead rate in the Painting Department for each unit of Product B if the company uses a multiple department rate system.

Question

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.  Determine the overhead rate in the Painting Department for each unit of Product B if the company uses a multiple department rate system.

Quizplus · Accepted Answer

To determine the overhead rate for the Painting Department, we need to use the formula: (Estimated overhead / Estimated direct labor hours) X (Direct labor hours for Painting Department / Total direct labor hours). 
For Product B, the calculation would be: 
(540,000 / 60,000) X (20,000 / 100,000) = $24.80 per dlh 
Therefore, the correct answer is B.