{"id":134,"date":"2021-01-26T22:12:43","date_gmt":"2021-01-26T22:12:43","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=134"},"modified":"2021-06-10T19:20:24","modified_gmt":"2021-06-10T19:20:24","slug":"allocating-overhead-using-departmental-rates","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/chapter\/allocating-overhead-using-departmental-rates\/","title":{"raw":"Allocating Overhead Using Departmental Rates","rendered":"Allocating Overhead Using Departmental Rates"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Allocate manufacturing overhead to cost objects using multiple rates and cost pools<\/li>\r\n<\/ul>\r\n<\/div>\r\nYou determined a departmental rate for each cost pool as follows:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\">Departments<\/th>\r\n<th class=\"r\" scope=\"col\">Total MOH<\/th>\r\n<th class=\"r\" scope=\"col\">Base(Description)<\/th>\r\n<th class=\"r\" scope=\"col\">Base(quantity)<\/th>\r\n<th class=\"r\" scope=\"col\">Rate<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td class=\"r\">\u00a0 Assembly<\/td>\r\n<td class=\"r\">$ 141,000.00<\/td>\r\n<td class=\"r\">Machine Hours<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 47,000.00<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 3.0000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"r\">\u00a0 Finishing<\/td>\r\n<td class=\"r\">\u00a0 47,000.00<\/td>\r\n<td class=\"r\">Direct Labor $<\/td>\r\n<td class=\"r\">$ 376,000.00<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 0.1250<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 188,000.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nNow, let\u2019s check our logic by applying the rate to each product line. If our calculations are correct, we should be allocating all $188,000 of the overhead based on two rates instead of one.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Products<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Basic<\/td>\r\n<td class=\"r\">Rate<\/td>\r\n<td class=\"r\">Base (description)<\/td>\r\n<td class=\"r\">Base (amount)<\/td>\r\n<td class=\"r\">Total Allocation<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Assembly<\/td>\r\n<td class=\"r\">$\u00a0 3.0000<\/td>\r\n<td class=\"r\">Machine Hours<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 28,800.00<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 $86,400.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Finishing<\/td>\r\n<td class=\"r\">$\u00a0 0.1250<\/td>\r\n<td class=\"r\">Direct Labor $<\/td>\r\n<td class=\"r\">$ 264,000.00<\/td>\r\n<td class=\"r\">$ 33,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$119,400.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Deluxe<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Assembly<\/td>\r\n<td class=\"r\">$\u00a0 3.0000<\/td>\r\n<td class=\"r\">Machine Hours<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 18,200.00<\/td>\r\n<td class=\"r\">\u00a0 $54,600.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Finishing<\/td>\r\n<td class=\"r\">$\u00a0 0.1250<\/td>\r\n<td class=\"r\">Direct Labor $<\/td>\r\n<td class=\"r\">$ 112,000.00<\/td>\r\n<td class=\"r\">$ 14,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 68,600.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,000.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nHere is another way to look at it:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Departments<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Assembly<\/td>\r\n<td class=\"r\">Rate<\/td>\r\n<td class=\"r\">Base (description)<\/td>\r\n<td class=\"r\">Base (amount)<\/td>\r\n<td class=\"r\">Total Allocation<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Basic<\/td>\r\n<td class=\"r\">$\u00a0 3.0000<\/td>\r\n<td class=\"r\">Machine Hours<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 28,800.00<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 $86,400.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Deluxe<\/td>\r\n<td class=\"r\">$\u00a0 3.0000<\/td>\r\n<td class=\"r\">Machine Hours<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 18,200.00<\/td>\r\n<td class=\"r\">$ 54,600.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$141,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finishing<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Basic<\/td>\r\n<td class=\"r\">$\u00a0 0.1250<\/td>\r\n<td class=\"r\">Direct Labor $<\/td>\r\n<td class=\"r\">$ 264,000.00<\/td>\r\n<td class=\"r\">$ 33,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Deluxe<\/td>\r\n<td class=\"r\">$\u00a0 0.1250<\/td>\r\n<td class=\"r\">Direct Labor $<\/td>\r\n<td class=\"r\">$ 112,000.00<\/td>\r\n<td class=\"r\">$ 14,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$47,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,000.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nThis shows that based on our standard hours and standard labor costs, all overhead will be allocated. Now let\u2019s look at the allocations for each purse.\r\n<h2>MOH Allocated to Basic Purse<\/h2>\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Basic Purse<\/th>\r\n<th scope=\"col\">MHR<\/th>\r\n<th scope=\"col\">DLH<\/th>\r\n<th scope=\"col\">DLR<\/th>\r\n<th scope=\"col\">DL$<\/th>\r\n<th scope=\"col\">Rate<\/th>\r\n<th scope=\"col\">Allocation<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>\u00a0 Assembly<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 9<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ 3.0000<\/td>\r\n<td class=\"r\">$27.0000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Finishing<\/td>\r\n<td><\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 4.125<\/td>\r\n<td class=\"r\">$20.00<\/td>\r\n<td class=\"r\">$82.50<\/td>\r\n<td class=\"r\">$ 0.1250<\/td>\r\n<td class=\"r\">$10.3125<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 \u00a0 Total<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$37.3125<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nOur basic purse takes 9 machine hours to produce (MHR) and we allocate $3 per machine hour of overhead, so the assembly department overhead allocation per purse is $27.\r\n\r\nOur basic purse takes 4.125 hours of labor at a standard cost of $20 for a total labor cost per basic purse of $82.50. Our allocation rate for the finishing department is $0.125, so we allocate $10.3125 of finishing department overhead to each basic purse.\r\n<h2>MOH Allocated to Deluxe Purse<\/h2>\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Deluxe Purse<\/th>\r\n<th scope=\"col\">MHR<\/th>\r\n<th scope=\"col\">DLH<\/th>\r\n<th scope=\"col\">DLR<\/th>\r\n<th scope=\"col\">DL$<\/th>\r\n<th scope=\"col\">Rate<\/th>\r\n<th scope=\"col\">Allocation<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Assembly<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 32.5<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ 3.0000<\/td>\r\n<td class=\"r\">$97.500<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Finishing<\/td>\r\n<td><\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 10<\/td>\r\n<td class=\"r\">$20.00<\/td>\r\n<td class=\"r\">$200.00<\/td>\r\n<td class=\"r\">$ 0.1250<\/td>\r\n<td class=\"r\">$25.000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 \u00a0 Total<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$122.500<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nOur deluxe purse takes 32.5 machine hours to produce (MHR) and we allocate $3 per machine hour of overhead, so the assembly department overhead allocation per purse is $97.50.\r\n\r\nOur deluxe purse takes 10 hours of labor at a standard cost of $20 for a total labor cost per basic purse of $200.00. Our allocation rate for the finishing department is $0.125, so we allocate $25.00 of finishing department overhead to each basic purse.\r\n\r\nWe\u2019ll round the allocated overhead cost to the basic unit from $37.3125 to $37.31. Notice that under this more sophisticated system of allocation, at $532.50, the deluxe purse appears to cost more to produce than the $515 it sells for. Also, notice that variable costs like direct material and direct labor (and variable manufacturing costs, which we have not included in this simulation) do not change on a per-unit basis.\r\n<h3>Product Manufacturing Costs<\/h3>\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Product 1<\/th>\r\n<th scope=\"col\">Product 2<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Using Multiple Allocation Rates<\/td>\r\n<td class=\"r\">Basic<\/td>\r\n<td class=\"r\">Deluxe<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Direct Materials<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 100.00<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 210.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Direct Labor<\/td>\r\n<td class=\"r\">82.50<\/td>\r\n<td class=\"r\">200.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Manufacturing Overhead<\/td>\r\n<td class=\"r\">37.31<\/td>\r\n<td class=\"r\">122.50<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 219.81<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 532.50<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nLet\u2019s compare these results to our single-rate computations by looking at the gross profit per unit.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Product 1<\/th>\r\n<th scope=\"col\">Product 2<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r\">Basic<\/td>\r\n<td class=\"r\">Deluxe<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight\" colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Multiple-base allocation (by department)<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales Price<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: Direct Variable Costs<\/td>\r\n<td class=\"r\">182.50<\/td>\r\n<td class=\"r\">410.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>62.50<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>105.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: Allocated Fixed Costs<\/td>\r\n<td class=\"r\">37.31<\/td>\r\n<td class=\"r\">122.50<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight\">Gross profit per unit<\/td>\r\n<td class=\"r highlight line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 25.19<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r highlight line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (17.50)<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight-red\" colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Single Allocation Rate (DMH)<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales Price<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: Direct Variable Costs<\/td>\r\n<td class=\"r\">182.50<\/td>\r\n<td class=\"r\">410.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>62.50<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>105.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: Allocated Fixed Costs<\/td>\r\n<td class=\"r\">36.00<\/td>\r\n<td class=\"r\">130.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight-red\">Gross profit per unit<\/td>\r\n<td class=\"r highlight-red line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 26.50<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r highlight-red line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 (25.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight-green\" colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Single Allocation Rate (DL$)<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales Price<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: Direct Variable Costs<\/td>\r\n<td class=\"r\">182.50<\/td>\r\n<td class=\"r\">410.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 62.50<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>105.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: Allocated Fixed Costs<\/td>\r\n<td class=\"r\">41.25<\/td>\r\n<td class=\"r\">100.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight-green\">Gross profit per unit<\/td>\r\n<td class=\"r highlight-green line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 21.25<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r highlight-green line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 5.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nUsing multiple (departmental) allocation rates, we see that sales of the deluxe purse are actually hurting our bottom line:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Basic<\/th>\r\n<th class=\"r\" scope=\"col\">Deluxe<\/th>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Gross profit per unit<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 25.19<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 (17.50)<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Times number of units sold<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,200<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 560<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total gross profit<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 80,600.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (9,800.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total gross profit - basic<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ \u00a0 80,600.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total gross profit - deluxe<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">$ \u00a0 (9,800.00)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total gross profit, all products<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ \u00a0 70,800.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nIf the sales manager thinks we can sell more basic purses, would it make sense to shift production away from deluxe purses?\r\n\r\nIf it takes 32.50 machine hours to produce one deluxe purse, and we are producing 560 per month, we could free up 18,200 machine hours by discontinuing the deluxe model. That would then allow us to produce at least 2,000 more basic models, which could increase the bottom line by over $50,000 ($25.19 * 2,000). However, discontinuing the deluxe model only frees up 5,600 labor hours (560 * 10 hours) which, according to our standards, only allows us to produce 1,357 more basic purses (1,357 * 4.125 hours per basic purse = 5,600 hours), so we would either be limited by that, or we would have to hire more employees to finish the increased production of basic purses (up to 15 more, in fact).\r\n\r\nYou\u2019ve now seen one example of the various ways to allocate costs for the Yore Company. Let\u2019s look at another example in this video:\r\n\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=6352542&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=dLYelm4hA3A&amp;video_target=tpm-plugin-vbk9i6j5-dLYelm4hA3A\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe>\r\n\r\nYou can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/DepartmentalOverheadRates_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Departmental Overhead Rates\" here (opens in new window)<\/a>.\r\n\r\nAlthough our information is becoming more detailed and sophisticated, and we hope more accurate, we still have one more option, Activity-Based Costing (ABC), that may give us yet more insight. However, before you tackle ABC, check your understanding of allocating fixed manufacturing overhead using multiple departmental rates.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]218832[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Allocate manufacturing overhead to cost objects using multiple rates and cost pools<\/li>\n<\/ul>\n<\/div>\n<p>You determined a departmental rate for each cost pool as follows:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\">Departments<\/th>\n<th class=\"r\" scope=\"col\">Total MOH<\/th>\n<th class=\"r\" scope=\"col\">Base(Description)<\/th>\n<th class=\"r\" scope=\"col\">Base(quantity)<\/th>\n<th class=\"r\" scope=\"col\">Rate<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td class=\"r\">\u00a0 Assembly<\/td>\n<td class=\"r\">$ 141,000.00<\/td>\n<td class=\"r\">Machine Hours<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 47,000.00<\/td>\n<td class=\"r\">$\u00a0 \u00a0 3.0000<\/td>\n<\/tr>\n<tr>\n<td class=\"r\">\u00a0 Finishing<\/td>\n<td class=\"r\">\u00a0 47,000.00<\/td>\n<td class=\"r\">Direct Labor $<\/td>\n<td class=\"r\">$ 376,000.00<\/td>\n<td class=\"r\">$\u00a0 \u00a0 0.1250<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ 188,000.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Now, let\u2019s check our logic by applying the rate to each product line. If our calculations are correct, we should be allocating all $188,000 of the overhead based on two rates instead of one.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Products<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Basic<\/td>\n<td class=\"r\">Rate<\/td>\n<td class=\"r\">Base (description)<\/td>\n<td class=\"r\">Base (amount)<\/td>\n<td class=\"r\">Total Allocation<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Assembly<\/td>\n<td class=\"r\">$\u00a0 3.0000<\/td>\n<td class=\"r\">Machine Hours<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 28,800.00<\/td>\n<td class=\"r\">\u00a0 \u00a0 $86,400.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Finishing<\/td>\n<td class=\"r\">$\u00a0 0.1250<\/td>\n<td class=\"r\">Direct Labor $<\/td>\n<td class=\"r\">$ 264,000.00<\/td>\n<td class=\"r\">$ 33,000.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$119,400.00<\/td>\n<\/tr>\n<tr>\n<td>Deluxe<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Assembly<\/td>\n<td class=\"r\">$\u00a0 3.0000<\/td>\n<td class=\"r\">Machine Hours<\/td>\n<td class=\"r\">\u00a0 \u00a0 18,200.00<\/td>\n<td class=\"r\">\u00a0 $54,600.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Finishing<\/td>\n<td class=\"r\">$\u00a0 0.1250<\/td>\n<td class=\"r\">Direct Labor $<\/td>\n<td class=\"r\">$ 112,000.00<\/td>\n<td class=\"r\">$ 14,000.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$ 68,600.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,000.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Here is another way to look at it:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<td colspan=\"5\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Departments<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Assembly<\/td>\n<td class=\"r\">Rate<\/td>\n<td class=\"r\">Base (description)<\/td>\n<td class=\"r\">Base (amount)<\/td>\n<td class=\"r\">Total Allocation<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Basic<\/td>\n<td class=\"r\">$\u00a0 3.0000<\/td>\n<td class=\"r\">Machine Hours<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 28,800.00<\/td>\n<td class=\"r\">\u00a0 \u00a0 $86,400.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Deluxe<\/td>\n<td class=\"r\">$\u00a0 3.0000<\/td>\n<td class=\"r\">Machine Hours<\/td>\n<td class=\"r\">\u00a0 \u00a0 18,200.00<\/td>\n<td class=\"r\">$ 54,600.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$141,000.00<\/td>\n<\/tr>\n<tr>\n<td>Finishing<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Basic<\/td>\n<td class=\"r\">$\u00a0 0.1250<\/td>\n<td class=\"r\">Direct Labor $<\/td>\n<td class=\"r\">$ 264,000.00<\/td>\n<td class=\"r\">$ 33,000.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Deluxe<\/td>\n<td class=\"r\">$\u00a0 0.1250<\/td>\n<td class=\"r\">Direct Labor $<\/td>\n<td class=\"r\">$ 112,000.00<\/td>\n<td class=\"r\">$ 14,000.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>$47,000.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$188,000.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>This shows that based on our standard hours and standard labor costs, all overhead will be allocated. Now let\u2019s look at the allocations for each purse.<\/p>\n<h2>MOH Allocated to Basic Purse<\/h2>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<tbody>\n<tr>\n<th scope=\"col\">Basic Purse<\/th>\n<th scope=\"col\">MHR<\/th>\n<th scope=\"col\">DLH<\/th>\n<th scope=\"col\">DLR<\/th>\n<th scope=\"col\">DL$<\/th>\n<th scope=\"col\">Rate<\/th>\n<th scope=\"col\">Allocation<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>\u00a0 Assembly<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 9<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$ 3.0000<\/td>\n<td class=\"r\">$27.0000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Finishing<\/td>\n<td><\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 4.125<\/td>\n<td class=\"r\">$20.00<\/td>\n<td class=\"r\">$82.50<\/td>\n<td class=\"r\">$ 0.1250<\/td>\n<td class=\"r\">$10.3125<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 \u00a0 Total<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$37.3125<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Our basic purse takes 9 machine hours to produce (MHR) and we allocate $3 per machine hour of overhead, so the assembly department overhead allocation per purse is $27.<\/p>\n<p>Our basic purse takes 4.125 hours of labor at a standard cost of $20 for a total labor cost per basic purse of $82.50. Our allocation rate for the finishing department is $0.125, so we allocate $10.3125 of finishing department overhead to each basic purse.<\/p>\n<h2>MOH Allocated to Deluxe Purse<\/h2>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<tbody>\n<tr>\n<th scope=\"col\">Deluxe Purse<\/th>\n<th scope=\"col\">MHR<\/th>\n<th scope=\"col\">DLH<\/th>\n<th scope=\"col\">DLR<\/th>\n<th scope=\"col\">DL$<\/th>\n<th scope=\"col\">Rate<\/th>\n<th scope=\"col\">Allocation<\/th>\n<\/tr>\n<tr>\n<td>\u00a0 Assembly<\/td>\n<td class=\"r\">\u00a0 \u00a0 32.5<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$ 3.0000<\/td>\n<td class=\"r\">$97.500<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Finishing<\/td>\n<td><\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 10<\/td>\n<td class=\"r\">$20.00<\/td>\n<td class=\"r\">$200.00<\/td>\n<td class=\"r\">$ 0.1250<\/td>\n<td class=\"r\">$25.000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 \u00a0 Total<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$122.500<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Our deluxe purse takes 32.5 machine hours to produce (MHR) and we allocate $3 per machine hour of overhead, so the assembly department overhead allocation per purse is $97.50.<\/p>\n<p>Our deluxe purse takes 10 hours of labor at a standard cost of $20 for a total labor cost per basic purse of $200.00. Our allocation rate for the finishing department is $0.125, so we allocate $25.00 of finishing department overhead to each basic purse.<\/p>\n<p>We\u2019ll round the allocated overhead cost to the basic unit from $37.3125 to $37.31. Notice that under this more sophisticated system of allocation, at $532.50, the deluxe purse appears to cost more to produce than the $515 it sells for. Also, notice that variable costs like direct material and direct labor (and variable manufacturing costs, which we have not included in this simulation) do not change on a per-unit basis.<\/p>\n<h3>Product Manufacturing Costs<\/h3>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Product 1<\/th>\n<th scope=\"col\">Product 2<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Using Multiple Allocation Rates<\/td>\n<td class=\"r\">Basic<\/td>\n<td class=\"r\">Deluxe<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Direct Materials<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 100.00<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 210.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Direct Labor<\/td>\n<td class=\"r\">82.50<\/td>\n<td class=\"r\">200.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Manufacturing Overhead<\/td>\n<td class=\"r\">37.31<\/td>\n<td class=\"r\">122.50<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 219.81<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 532.50<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Let\u2019s compare these results to our single-rate computations by looking at the gross profit per unit.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Product 1<\/th>\n<th scope=\"col\">Product 2<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><\/td>\n<td class=\"r\">Basic<\/td>\n<td class=\"r\">Deluxe<\/td>\n<\/tr>\n<tr>\n<td class=\"highlight\" colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Multiple-base allocation (by department)<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Sales Price<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\n<\/tr>\n<tr>\n<td>Less: Direct Variable Costs<\/td>\n<td class=\"r\">182.50<\/td>\n<td class=\"r\">410.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>62.50<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>105.00<\/td>\n<\/tr>\n<tr>\n<td>Less: Allocated Fixed Costs<\/td>\n<td class=\"r\">37.31<\/td>\n<td class=\"r\">122.50<\/td>\n<\/tr>\n<tr>\n<td class=\"highlight\">Gross profit per unit<\/td>\n<td class=\"r highlight line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 25.19<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r highlight line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (17.50)<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td class=\"highlight-red\" colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Single Allocation Rate (DMH)<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Sales Price<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\n<\/tr>\n<tr>\n<td>Less: Direct Variable Costs<\/td>\n<td class=\"r\">182.50<\/td>\n<td class=\"r\">410.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>62.50<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>105.00<\/td>\n<\/tr>\n<tr>\n<td>Less: Allocated Fixed Costs<\/td>\n<td class=\"r\">36.00<\/td>\n<td class=\"r\">130.00<\/td>\n<\/tr>\n<tr>\n<td class=\"highlight-red\">Gross profit per unit<\/td>\n<td class=\"r highlight-red line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 26.50<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r highlight-red line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 (25.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td class=\"highlight-green\" colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Single Allocation Rate (DL$)<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Sales Price<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 245.00<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 515.00<\/td>\n<\/tr>\n<tr>\n<td>Less: Direct Variable Costs<\/td>\n<td class=\"r\">182.50<\/td>\n<td class=\"r\">410.00<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 62.50<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>105.00<\/td>\n<\/tr>\n<tr>\n<td>Less: Allocated Fixed Costs<\/td>\n<td class=\"r\">41.25<\/td>\n<td class=\"r\">100.00<\/td>\n<\/tr>\n<tr>\n<td class=\"highlight-green\">Gross profit per unit<\/td>\n<td class=\"r highlight-green line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 21.25<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r highlight-green line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 5.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>Using multiple (departmental) allocation rates, we see that sales of the deluxe purse are actually hurting our bottom line:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Basic<\/th>\n<th class=\"r\" scope=\"col\">Deluxe<\/th>\n<th class=\"r\" scope=\"col\"><\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Gross profit per unit<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 25.19<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 (17.50)<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Times number of units sold<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,200<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 560<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Total gross profit<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 80,600.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (9,800.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Total gross profit &#8211; basic<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$ \u00a0 80,600.00<\/td>\n<\/tr>\n<tr>\n<td>Total gross profit &#8211; deluxe<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">$ \u00a0 (9,800.00)<\/td>\n<\/tr>\n<tr>\n<td>Total gross profit, all products<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$ \u00a0 70,800.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>If the sales manager thinks we can sell more basic purses, would it make sense to shift production away from deluxe purses?<\/p>\n<p>If it takes 32.50 machine hours to produce one deluxe purse, and we are producing 560 per month, we could free up 18,200 machine hours by discontinuing the deluxe model. That would then allow us to produce at least 2,000 more basic models, which could increase the bottom line by over $50,000 ($25.19 * 2,000). However, discontinuing the deluxe model only frees up 5,600 labor hours (560 * 10 hours) which, according to our standards, only allows us to produce 1,357 more basic purses (1,357 * 4.125 hours per basic purse = 5,600 hours), so we would either be limited by that, or we would have to hire more employees to finish the increased production of basic purses (up to 15 more, in fact).<\/p>\n<p>You\u2019ve now seen one example of the various ways to allocate costs for the Yore Company. Let\u2019s look at another example in this video:<\/p>\n<p><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=6352542&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=dLYelm4hA3A&amp;video_target=tpm-plugin-vbk9i6j5-dLYelm4hA3A\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe><\/p>\n<p>You can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/DepartmentalOverheadRates_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Departmental Overhead Rates&#8221; here (opens in new window)<\/a>.<\/p>\n<p>Although our information is becoming more detailed and sophisticated, and we hope more accurate, we still have one more option, Activity-Based Costing (ABC), that may give us yet more insight. However, before you tackle ABC, check your understanding of allocating fixed manufacturing overhead using multiple departmental rates.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm218832\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=218832&theme=oea&iframe_resize_id=ohm218832\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-134\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Allocating Overhead Using Departmental Rates. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Departmental Overhead Rates. <strong>Provided by<\/strong>: Edspira. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/dLYelm4hA3A\">https:\/\/youtu.be\/dLYelm4hA3A<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":8,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Allocating Overhead Using Departmental Rates\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Departmental Overhead Rates\",\"author\":\"\",\"organization\":\"Edspira\",\"url\":\"https:\/\/youtu.be\/dLYelm4hA3A\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-134","chapter","type-chapter","status-publish","hentry"],"part":27,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/134","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":12,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/134\/revisions"}],"predecessor-version":[{"id":2161,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/134\/revisions\/2161"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/27"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/134\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/media?parent=134"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=134"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=134"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/license?post=134"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}