Elliott Engines Inc. produces three products—pistons, valves, and cams—for the h

Question

Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:

The estimated direct labor rate is $19 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $177,800.

If required, round all per unit answers to the nearest cent.

a. Determine the plantwide factory overhead rate.
$ per dlh

b. Determine the factory overhead and direct labor cost per unit for each product.

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c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.

Budgeted Volume
(Units) Direct Labor
Hours Per Unit Price Per
Unit Direct Materials
Per Unit Pistons 8,000 0.30 $33 $16 Valves 25,000 0.15 8 3 Cams 1,000 0.20 44 19

Explanation / Answer

Solution a:

Plantwide factory overhead rate = Estimated overhead / Estimated direct labor hours

Budgeted direct labor hours = (8000*0.30) + (25000*0.15) + (1000*0.20) = 6350 hours

Plantwide factory overhead rate = $177,800 / 6350 = $28 per direct labor hour

Solution b:

Solution c:

Computation of factory overhead and direct labor cost per unit Particulars Direct labor hours per unit Factory overhead cost per unit Direct labor cost per unit Pistons 0.30 $8.40 $5.70 Valves 0.15 $4.20 $2.85 Cams 0.20 $5.60 $3.80

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