Assume that X Company has decided to switch to a departmental allocation system. It has two departments and will use direct labor hours as the cost driver in Department 1 and machine hours as the cost driver in Department 2. The following are budgeted costs and driver amounts for these two departments in 2015:
Assume the following information for Product 1 in 2015:
4. Using the departmental allocation system, how much overhead was allocated to Product 1 (round overhead rate(s) to the nearest cent and your final answer to the nearest dollar)?
Solution
Overhead rate: In case of department 1, divide the budgeted overhead by direct labor hours to get the overhead rate. $80,000
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Assume that X Company has decided to switch to a departmental allocati.docx
1. Assume that X Company has decided to switch to a departmental allocation system. It has two
departments and will use direct labor hours as the cost driver in Department 1 and machine hours
as the cost driver in Department 2. The following are budgeted costs and driver amounts for
these two departments in 2015:
Assume the following information for Product 1 in 2015:
4. Using the departmental allocation system, how much overhead was allocated to Product 1
(round overhead rate(s) to the nearest cent and your final answer to the nearest dollar)?
Department 1 Department 2
Overhead $80,000 $48,000
Direct labor $680,000 $850,000
Direct labor hours 40,000 50,000
Machine hours 120,000 130,000
Solution
Overhead rate: In case of department 1, divide the budgeted overhead by direct labor hours to
get the overhead rate. $80,000
