Okay. Take a second turn.
Here's the situation.
Consider the same company,
the information we just had with the prior Your Turn,
but now we have some additional information.
The company has two manufacturing departments.
We have some information about Product A,
additional information to the prior Your Turn example.
We have some additional information about
Product B and we have some additional total information.
Now notice we're being given some information about what
happens in Department One and Department Two with direct labor.
And we're being given some information about what happens in
Department One and Department Two with manufacturing overhead.
So your task is to determine how much manufacturing overhead
per unit has allocated to each Product A and B,
if the company uses
a departmental allocation method and direct labor dollars is the allocation base.
Take a few minutes,
give it a try and then come on back,
and we'll see how you did.
I'll be waiting for you over there at the white board.
Hello again. How did it go?
I bet you're getting great at this.
We're going to allocate the manufacturing overhead of each department separately,
to Product A and Product B and we're using as the allocation base direct labor costs.
Let's get started.
Department One,
we have overhead of $30,000.
So we're going to take the $30,000 in
overhead and divide by the estimated amount of the allocation base,
that's $20,000 in direct labor cost.
So we have an allocation rate of 150 percent of direct labor cost.
In Department Two, we have overhead of $60,000 and
the estimated amount of the allocation based direct labor is $30,000.
So we're taking our estimated overhead of
60,000 and we're dividing by the estimated amount of
the allocation base $30,000 and we see a rate 200% of direct labor cost.
So we're going to use those rates to allocate the overhead in each department separately,
to Product A and to Product B.
So let's start with Department One overhead allocating it to Product A.
We're going to take 150 percent times
the amount of direct labor that Product A incurs in Department One, $10.
So that will give us a $20 allocation of overhead,
that's not correct, is it?
Now, that would give us a $15 allocation of overhead to Product A from Department One.
And then, to Product B,
we'd see 150 percent times the amount of labor in Department One for Product B.
So 150 percent times the $5 of direct labor is a 750.
So that's the allocation of overhead from Department One to Products A and B.
Let's move the Department Two,
where our allocation rate is 200% of direct labor.
To allocate to Product A,
we're going to take the allocation rate of 200% and we'll
multiply that times the direct labor that Product A incurs in department two.
So that looks to me like that would be $20.
Now let's allocate to product B.
We have the allocation rate 200% times
the amount of labor that Product B incurs in Department two,
so that's $20 to Product B as well.
So then the total amount of overhead that gets allocated to Product A from
Department One and Department Two is $35.
And the total amount that product B is allocated if we add
Department One and Department Two 27.50.
Great job.
Luann J. LynchAlmand R. Coleman Professor of Business Administration
