Applied Overhead and Unit Overhead Cost: Plantwide Rates Seco, Inc., produces tw

Question

Applied Overhead and Unit Overhead Cost: Plantwide Rates

Seco, Inc., produces two types of clothes dryers: deluxe and regular. Seco uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year:

Required:

1. Calculate the predetermined plantwide overhead rate, using direct labor hours.
$ per hour

Calculate the applied overhead for each product, using direct labor hours.

2. Calculate the overhead cost per unit for each product. If required, round your answers to the nearest cent.

3. What if the deluxe product used 20,000 hours (to produce 20,000 units) instead of 10,000 hours (total expected hours remain the same)? Calculate the effect on the profitability of this product line if all 20,000 units are sold.

Profits would by $

Estimated overhead $1,504,000 Expected activity 47,000 Actual activity (direct labor hours):      Deluxe dryer 10,000      Regular dryer 37,000 Units produced:      Deluxe dryer 20,000      Regular dryer 185,000

Explanation / Answer

Req 1. Pre-determined OH rate per DLH: Estimated Overheads 1504000 Divide: Estimated DLH 47000 Pre-determined OH rate per DLH: 32 Overheads Applied: Deluxe (10000 DLH @ 32) 320000 Regular (37000 DH @ 32) 1184000 Req 2. Overheads Cost per unit: Deluxe Regular Overheads applied 320000 1184000 Divide: Number of units 20000 185000 OH cost per unit 16 6.4 Req 3. Increase in DLH for deluxe (20000-10000): 10,000 OH rate per DLH 32 Increase OH cost in Deluxe 320,000 The profit will decrease by $ 320000 (when all the units have been sold out)

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