Chapter 4, Problem 6E

A.

To determine

Single plant-wide factory overhead rate: The rate at which the factory or manufacturing overheads are allocated to products is referred to as single plant-wide factory overhead rate.

Formula to compute single plant-wide overhead rate:

$\begin{array}{l}\text{Single plant-wide }\\ \text{overhead rate}\end{array}\}\text{ = }\frac{\text{Total budgeted factory overhead}}{\text{Total budgeted plant-wide allocation base}}$

Multiple production department factory overhead rate: This allocation method identifies different departments in the process of production. The factory overheads are allocated to products based on the overhead rate for each of the production departments.

Formula to compute multiple production department overhead rate:

$\begin{array}{l}\text{Multiple production }\\ \text{department overhead rate}\end{array}\}\text{ = }\frac{\text{Budgeted department factory overhead}}{\text{Budgeted Department allocation base}}$

To compute: The single plant-wide overhead rate using direct machine hours (DMH) as the allocation base, and compute factory overhead allocated per unit.

B.

To determine

To compute: The multiple production department overhead rate using direct machine hours (DMH) as the allocation base, and compute factory overhead allocated per unit

C.

To determine

To provide: Recommendations to the management concerning the product cost based on the two factory overhead rate approaches