Pacifica Industrial Products Corporation makes two products, Product H and Produ
ID: 2337160 • Letter: P
Question
Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 31,000 units next year and Product L is expected to sell 6,200 units. A unit of either product requires 0.7 direct labor-hours. The company's total manufacturing overhead for the year is expected to be $2,213,400. Required: 1-a. The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product? (Round your answers to 2 decimal places.) Product H Product L Overhead cost per unit59.50 59.50 1-b. Compute the total amount of overhead cost that would be applied to each product. Product H Product L Total Total overhead cost $1,844,500 $368,900 $2,213,400 2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $1,106,700 assigned to Product H and $1,106,700 assigned to Product L If this suggestion is followed, how much overhead cost per unit would be assigned to each product? (Round your answers to 2 decimal places.) Product H Product L Overhead cost per unit 35.70178.50Explanation / Answer
Working notes are part of Answer
Calculation of total direct labor hours
Product H
Product L
Total
(A). Number of Units to be sold
31000
6200
(B). labor Hour per Unit
0.7
0.7
(AxB). Total labor hours
21700
4340
26040
Calculation of Predetermined Overhead rate
(A)
Total Overheads
$ 2,213,400.00
(B)
Total Number of Labor hours
26040
(A/B)
Predetermined overhead per labor hour
$ 85.00
Requirement 1-a
Overhead cost per Unit
Product H
Product L
(A)
Overhead per Hour
$ 85.00
$ 85.00
(B)
Labor hour per unit
0.7
0.7
(A/1xB)
Overhead per unit
$ 59.50
$ 59.50
Requirement 1-b
Cost to be applied to each products
Product H
Product L
Total
(A)
Total Labor hours required
21700
4340
26040
(B)
overhead per Hour
$ 85.00
$ 85.00
$ 85.00
(AxB)
Overheads Applied
$ 1,844,500.00
$ 368,900.00
$ 2,213,400.00
Requirement 2
Calculation of Overhead cost per unit in case of using ABC costing
Product H
Product L
(A)
Overheads Applied
$ 1,106,700.00
$ 1,106,700.00
(B)
Total Number of units produced
31000
6200
(A/B)
Overhead per Unit
$ 35.70
$ 178.50
All the answers already given are absolutely correct.
Calculation of total direct labor hours
Product H
Product L
Total
(A). Number of Units to be sold
31000
6200
(B). labor Hour per Unit
0.7
0.7
(AxB). Total labor hours
21700
4340
26040
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