COST ASSIGNMENT: DAVIDSON COMPANY

The total factory for Davidson Company is budget for the year $770,000, divided into two
department, which are

The total factory for Davidson Company is budget for the year $770,000, divided into two
department, which are Fabrication, $510,000 and Assembly, $260,000. The company
manufactures two office products: C & D.
The labor hour’s requirement for each of the products is as follows:

Product Fabrication Assembly

C 3 hours 7 hours
D 5 hours 3 hours

Production budget for the year is as follows:

Product Quantity (units)

C 5,700
D 7,600

Determine

a) The number of budget direct labor hours for the year in each department and the whole
plant.
b) The plant-wide factory overhead rate base on direct labor hour.
c) The department factory overhead rates for both department, and
d) The factory overhead allocated per unit for each product using the departmental factory
overhead allocation rates.
Answer for Davidson Company
a) Formulae: Total hours = Quantity x Hours
: Total Number = Fabrication + Assembly

Fabrication Assembly Whole Plant

(Total
Hours)
Product Quantity Hours Total Hours Total (Fabrication
(units) Hours Hors + Assembly)
C 5,700 3 17,100 7 39,900 57,000
D 7,600 5 38,000 3 22,800 60,800
55,100 62,700 117,800

b) Plant-wide Factory Overhead rate:

Total Factory Overhead
Total Factory Activity Level (Labor Hours)

770,000
(55,100 + 62,700)

= $6.54 per labor hours

c) Department Factory Overhead rate:

Department Overhead
Department Activity Level (Labor Hours)

Fabrication Department Overhead Rate:

510,000
55,100

= $9.26 per labor hours

Assembly Department Overhead Rate:

260,000
62,700

= $4.15 per labor hours

d) OH Absorbed/ Allocated (Formula: Hours x Rate)

Product C Hours Rate

Fabrication 3 9.26 27.78
Assembly 7 4.15 29.05
56.83

Product D Hours Rate

Fabrication 5 9.26 46.30
Assembly 3 4.15 12.45
58.75