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Adirondack 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.


Overhead Total Direct DLH per Product

Labor Hours A B

Painting Dept. $250,000 10,000 16 4

Finishing Dept. 75,000 12,000 4 16

Totals $325,000 22,000 20 20


Calculate the overhead rate per unit for Product A in the painting department of Adirondack Marketing Inc.

Answer :

Answer:

Painting Dept Overhead Rate per unit if Product A = $400

Explanation:

The overhead absorption rate will be calculated for individual departments. First we need to calculate the departmental OAR.

  • Painting OAR = 250000 / 10000 = $25 per direct labor hour
  • Finishing OAR = 75000 / 12000 = $6.25 per direct labor hour

One unit of product A uses 16 Direct Labor hours in Painting department.

Painting department overheads allocated to one unit of Product A will be,

25 * 16 = $400 per unit of Product A

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