Production Selling Price Prime costs per unit Number of production runs Receivin

Question

Production Selling Price Prime costs per unit Number of production runs Receiving orders Machine hours Direct labor hours Engineering hours Material moves Overhead is allocated using a plant-wide rage based on direct labor hours. Part 127 500,000 $31.86 $9.53 100 400 125,000 250,000 5,000 500 Part 234 100,000 $24.00 $8.26 200 1,000 60,000 22,500 5,000 400 Overhead Cost Pools Setup costs Material handling costs Machine costs Receiving costs Engineering costs General plant costs $240,000 900,000 1,750,000 2,100,000 1,500,000 500,000 $6,990,000 Total

Explanation / Answer

Calculation of Overhead and Gross Margin Using Traditional Costing :

Per Unit

Part 127

Part 234

Selling Price / Unit

$                                              31.86

$                                            24.00

Less: Prime Cost / Unit

$                                              (9.53)

$                                            (8.26)

Less: Overhead / Unit

$                                            (12.83)

$                                            (5.77)

Gross Margin / Unit

$                                                9.50

$                                              9.97

Total Profit

(Units sold * Gross Margin / unit)

Note:

Calculation of Overhead / Unit :

Part 127

Part 234

Total

Direct Labor Hours

                                             250,000

                                             22,500

         272,500

Allocated Overhead cost (A)

$                                6,412,844.04

$                                 577,155.96

$ 6,990,000

6990000 * (250000 / 272500)

6990000 * (22500 / 272500)

Units Produced (B)

                                             500,000

                                          100,000

Overhead / Unit = A/B =

$                                              12.83

$                                              5.77

Calculation of Overhead and Gross Margin Using Traditional Costing :

Per Unit

Part 127

Part 234

Selling Price / Unit

$                                              31.86

$                                            24.00

Less: Prime Cost / Unit

$                                              (9.53)

$                                            (8.26)

Less: Overhead / Unit

$                                            (12.83)

$                                            (5.77)

Gross Margin / Unit

$                                                9.50

$                                              9.97

Total Profit

(Units sold * Gross Margin / unit)

Note:

Calculation of Overhead / Unit :

Part 127

Part 234

Total

Direct Labor Hours

                                             250,000

                                             22,500

         272,500

Allocated Overhead cost (A)

$                                6,412,844.04

$                                 577,155.96

$ 6,990,000

6990000 * (250000 / 272500)

6990000 * (22500 / 272500)

Units Produced (B)

                                             500,000

                                          100,000

Overhead / Unit = A/B =

$                                              12.83

$                                              5.77

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