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The Aleutian Company produces two products, Rings and Dings. They are manufactured in two departments—Fabrication and Assembly. Data for the products and departments are listed below. Product Number of Units Labor Hours Per Unit Machine Hours Per Unit Rings 1,080 7 4 Dings 2,410 5 7 All of the machine hours take place in the Fabrication Department, which has an estimated overhead of $87,900. All of the labor hours take place in the Assembly Department, which has an estimated total overhead of $73,500. The Aleutian Company uses departmental overhead rates. The Fabrication Department uses machine hours for an allocation base, and the Assembly Department uses labor hours. What is the overhead cost per unit for Rings?

a.$42.85
b.$46.25
c.$3.85
d.$47.80

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Answer:

a. $42.85

Explanation:

Given,

Product    No. of Units    Labor hours per unit      Total labor hours

Ring              1,080       ×              7                      =          7,560

Ding              2,410       ×              5                      =         12,050

Total labor hours = 19,610 hours

Since all of the labor hours take place in the Assembly Department, overhead rate = $73,500/19,610 hours = $3.75

Product    No. of Units    Machine hours per unit   Total machine hours

Ring              1,080       ×              4                      =          4,320

Ding              2,410       ×              7                      =         16,870

Total machine hours = 21,190 hours

As all of the machine hours take place in the Fabrication Department, overhead rate = $87,900/21,190 hours = $4.15

Total overhead cost per unit for rings

= (Assembly department overhead rate x Labor hours per unit for Rings) + (Fabrication department overhead rate x machine hours per unit for Rings)

= ($3.75 × 7) + ($4.15 × 4) = $42.85

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