Gwinnett County Chrome Company manufactures three chrome-plated products—automobile bumpers,valve covers, and wheels. These products are manufactured in two production departments (Stamping and Plating). The factory overhead for Gwinnett County Chrome is $239,200. The three products consume both machine hours and direct labor hours in the two production departments as follows:

Direct Labor Hours Machine Hours
Stamping Department
Automobile bumpers 560 800
Valve covers 300 560
Wheels 340 600
Subtotal 1200 1960

Plating Department:
Automobile bumpers 170 1170
Valve covers 180 710
Wheels 175 760
Subtotal 525 2640
Total 1725 4600

The management of Gwinnett County Chrome Company now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows:

Stamping Department $120,000
Plating Department 104,000
Total $224,000

Required:
a. Determine the multiple production department factory overhead rates, using direct labor hours for the Stamping Department and machine hours for the Plating Department.
b. Determine the product factory overhead costs, using the multiple production department rates in (a).

Answer and Explanation:

1. The computation of Stamping Department and machine hours is shown below:-

Stamping department = Associated Overheads ÷ Total Direct Labor hours

= $120,000 ÷ 1,200

= $100

Plating Department = Associated Overheads ÷ Total Machine hours

= $104,000 ÷ 2,640

= $39.39

2. The computation of product factory overhead costs is shown below:-

Stamping Department = Direct Labor hour × overhead rate

Plating Department = Machine hours × Overhead rate

Particulars            Automobile lamps    Valve Covers         Wheels

Stamping

Department              $56,000                    $30,000          $34,000

                               (560 × $100)            (300 × $100)     (340 × $100)

Plating

Department                $117,000                   $71,000          $76,000

                               (1,170 × $100)           (710 × $100)      (760 × $100)

Total Factory

overhead                    $173,000                 $101,000            $110,0

Following are the responses to the given question:

Explanation:

For question 1:

Calculating the cost per unit:

For question 2:

Calculating the ending inventory units:

Calculating the cost for the Ending inventory:

For question 3:

Calculating the absorption costing for the income statement:

Particular                                             Amount

Sales

-COGS

Gross profit                                          

Cost of variable marketing  

marketing and administrative costs are fixed

Net income