The total factory overhead for Rowland Company is budgeted for the year at $652,000 and divided into two departments: Fabrication $460,000 and Assembly $192,000. Rowland manufactures two products: treadmills and weight machines. Each treadmill requires 3 direct labor hours in Fabrication and 1 direct labor hour in Assembly. Each weight machine requires 2 direct labor hours in Fabrication and 5 direct labor hours in Assembly. Each product is budgeted for 4,000 units of production for the year.
Determine the factory overhead allocated per unit for each weight machine, using the department factory overhead allocation rates.
a. $77.00
b. $163.00
c. $86.00
d. $81.50

$86

Explanation:

The total overhead for Rowland Co. = $652,000 per annum (p/a). broken down across two departments as follows:

Department/Item                     (Treadmill)      ||     (Weight Machine)

                                                    (Direct labor hours in production)      Total

Fabrication = $460,000 p/a            3              ||                 2

Assembly = $192,000 p/a                1              ||                 5

Nos of Units for production            4000          ||              4000

To produce 4000 Weight Machines, would require 8000 fabrication hours and 20,000 assembly hours. while, 4000 treadmills will require 12,000 fabrication hours and 4,000 assembly hours.

Total number of Fabrication hours for the year is 12,000 + 8,000 = 20,000.

Total number of assembly hours for the year is 20,000 + 4,000 = 24,000

Unit cost per hour of fabrication (uF) = $460,000/20,000 = $23

Unit cost per hour of assembly (uA) = $192,000/24,000 = $8

Therefore, the allocated overhead per unit for each weight machine

= (2 * $23) + (5 * $8) = $46 + $40 = $86

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