Given: Ontario, Inc. manufactures two products, Standard and Enhanced, and appli

Question

Given:
Ontario, Inc. manufactures two products, Standard and Enhanced, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period are $800,000 and 25,000 hours, respectively. Information about the company’s products follows.

Standard:
Estimated production volume, 3,000 units
Direct-material cost, $25 per unit
Direct labor per unit, 3 hours at $12 per hour

Enhanced:
Estimated production volume, 4,000 units
Direct-material cost, $40 per unit
Direct labor per unit, 4 hours at $12 per hour

Ontario’s overhead of $800,000 can be identified with three major activities: order processing ($150,000), machine processing ($560,000), and product inspection ($90,000). These activities are driven by number of orders processed, machine hours worked, and inspection hours, respectively. Data relevant to these activities follow.

Orders
Processed Machine Hours
Worked Inspection
Hours
Standard 300 18,000 2,000
Enhanced 200 22,000 8,000

Total 500 40,000 10,000


How would i go about finding :
Assuming use of direct-labor hours to apply overhead to production, compute the unit manufacturing costs of the Standard and Enhanced products if the expected manufacturing volume is attained.

I do not even know where to start! Please any help would be much appreciated.

Explanation / Answer

Assuming use of direct-labor hours to apply overhead to production, Overhead/direct labor hours = 800,000/25,000 = $32 per direct labor hour -- this means for every direct labor hour, $32 of overhead is applied. Standard: Direct Materials 25 per unit direct labor 36 per unit (3 hours*$12 per hour) Overhead 96 per unit (3 hours*$32 per hour) Total unit cost = 157 Enhanced Direct materials 40 per unit Direct labor 48 per unit (4 hours*$12 per hour) Overhead 128 per unit (4 hours*$32 per hour) Total unit cost = 216 unit cost for standard is $157 unit cost for enhanced is $216

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