If Smelly changes its overhead allocation to departmental rates,what is the product cost per case for Product J assuming Departments C and D use direct labor hours and machine hours as their respective allocation bases?
A)$169.30
B)$161.50
C)$166.00
D)$182.44

Question

Quizplus · Accepted Answer

To calculate the product cost per case for Product J, we need to allocate overhead using departmental rates.

First, we calculate the predetermined overhead rate for each department:

Department C: 
Predetermined overhead rate = Estimated overhead costs / Estimated direct labor hours 
= $375,000 / 25,000 hours 
= $15/hour

Department D: 
Predetermined overhead rate = Estimated overhead costs / Estimated machine hours 
= $480,000 / 60,000 hours 
= $8/hour

Next, we allocate overhead to each department using their respective allocation bases:

Department C: 
Overhead allocation = Direct labor hours x Predetermined overhead rate 
= 5,000 hours x $15/hour 
= $75,000

Department D: 
Overhead allocation = Machine hours x Predetermined overhead rate 
= 15,000 hours x $8/hour 
= $120,000

Total overhead allocation = $75,000 + $120,000 = $195,000

Finally, we calculate the product cost per case for Product J:

Direct materials = $80 
Direct labor = $60 
Manufacturing overhead (allocated) = $195,000 / 9,000 cases = $21.67 per case

Product cost per case = Direct materials + Direct labor + Manufacturing overhead 
= $80 + $60 + $21.67 
= $161.67

Therefore, the best choice is C, $166.00, which is the closest answer option to our calculated product cost per case.

If Smelly Changes Its Overhead Allocation to Departmental Rates,what Is