National Inc. manufactures two models of CMD that can be used as cell phones, MP

Question

National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders. Model Annual Sales in Units High F 9,000 Great P 14,480 National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High F Great P Direct materials $34.25 $23.22 Direct labor $15.57 $11.52 Budgeted Factory Overhead Engineering and Design 2,141 engineering hours $365,873 Quality Control 11,380 inspection hours $236,309 Machinery 30,705 machine hours $473,265 Miscellaneous Overhead 23,480 direct labor hours $117,681 Total $1,193,128 National's controller had been researching activity-based costing and decided to switch to it. A special study determined National's two products have the following budgeted activities: High F Great P Engineering and design hours 833 1,280 Quality control inspection hours 5,002 6,230 Machine hours 17,986 11,940 Labor hours 10,430 12,420 What is the overhead application rate using the firm's volume-based costing system (rounded to the nearest percent or cents)?   National Inc. manufactures two models of CMD that can be used as cell phones, MPX, and digital camcorders. Model Annual Sales in Units High F 9,000 Great P 14,480 National uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High F Great P Direct materials $34.25 $23.22 Direct labor $15.57 $11.52 Budgeted Factory Overhead Engineering and Design 2,141 engineering hours $365,873 Quality Control 11,380 inspection hours $236,309 Machinery 30,705 machine hours $473,265 Miscellaneous Overhead 23,480 direct labor hours $117,681 Total $1,193,128 National's controller had been researching activity-based costing and decided to switch to it. A special study determined National's two products have the following budgeted activities: High F Great P Engineering and design hours 833 1,280 Quality control inspection hours 5,002 6,230 Machine hours 17,986 11,940 Labor hours 10,430 12,420 What is the overhead application rate using the firm's volume-based costing system (rounded to the nearest percent or cents)?  

Explanation / Answer

Budgetary Factory Overheads Cost Driver High F(Hours) Great P(Hours) Total Hours High F Great P Engineering and Design Engineering Hours 833 1280 2113 0.39 0.61 Quality Control Inspection Hours 5002 6230 11232 0.45 0.55 Machinery Machine Hours 17986 11940 29926 0.60 0.40 Miscellaneous Overhead Direct Labor Hours 10430 12420 22850 0.46 0.54 Allocation of Overheads based on the percnetages obtained Budgetary Factory Overheads Cost Driver High F Great P Overheads High F Great P Engineering and Design Engineering Hours 0.39 0.61 365873 144236.7293 221636.2707 Quality Control Inspection Hours 0.45 0.55 236309 105236.6113 131072.3887 Machinery Machine Hours 0.60 0.40 473265 284439.7611 188825.2389 Miscellaneous Overhead Direct Labor Hours 0.46 0.54 117681 53716.09759 63964.90241 587629.1993 605498.8007 Total Cost under Activity Based Costing Particulars High F Great P Actual sales (units) 9000 14480 Direct Materials per unit 34.25 23.22 Direct materials 308250 336225.6 Direct Labor (per unit) 15.57 11.52 Direct Labor 140130 166809.6 Prime Cost 448380 503035.2 Overheads 587629.1993 605498.8007 Total Cost under Activity Based Costing 1036009.199 1108534.001

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