Smelly Perfume Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Cindy is the department manager of Department C which produces Products J and P.Department C has $16,200 in traceable overhead.Diane is the department manager of Department D which manufactures Product X.Department D has $11,100 in traceable overhead.The product costs (per case of 24 bottles)and other information are as follows: 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

Smelly Perfume Company manufactures and distributes several different products.The company currently uses a plantwide allocation method for allocating overhead at a rate of $7 per direct labor hour.Cindy is the department manager of Department C which produces Products J and P.Department C has $16,200 in traceable overhead.Diane is the department manager of Department D which manufactures Product X.Department D has $11,100 in traceable overhead.The product costs (per case of 24 bottles)and other information are as follows:  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.

Quizplus · Accepted Answer

First, we need to calculate the departmental rates for Department C and Department D.

Department C Rate:
Total direct labor hours = 9,000
Total machine hours = 1,800
Overhead costs = $16,200

Overhead allocation rate based on direct labor hours = $16,200 / 9,000 hours = $1.80 per direct labor hour
Overhead allocation rate based on machine hours = $16,200 / 1,800 hours = $9.00 per machine hour

Department D Rate:
Total direct labor hours = 3,000
Total machine hours = 7,200
Overhead costs = $11,100

Overhead allocation rate based on direct labor hours = $11,100 / 3,000 hours = $3.70 per direct labor hour
Overhead allocation rate based on machine hours = $11,100 / 7,200 hours = $1.54 per machine hour

Next, we can use the departmental rates to allocate overhead costs to each product in Departments C and D.

Product J:

Department C:
Direct labor hours = 2,000
Machine hours = 500

Overhead allocated based on direct labor hours = $1.80 x 2,000 hours = $3,600
Overhead allocated based on machine hours = $9.00 x 500 hours = $4,500

Department D:
Direct labor hours = 1,200
Machine hours = 2,400

Overhead allocated based on direct labor hours = $3.70 x 1,200 hours = $4,440
Overhead allocated based on machine hours = $1.54 x 2,400 hours = $3,696

Total overhead allocated to Product J = $3,600 + $4,500 + $4,440 + $3,696 = $16,236

Total cost of Product J = Direct materials + Direct labor + Total overhead allocated
= $460 + $1,620 + $16,236/8,400 bottles = $1,920 + $1.93 per bottle
= $1,920 + $1.93 x 24 bottles
= $1,920 + $46.32
= $1,966.32

Therefore, 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 is $1,966.32 / 12 cases = $166.00 (rounded to the nearest cent).

The correct answer is C) $166.00.

Smelly Perfume Company Manufactures and Distributes Several Different Products