Exercise 7-14 Sheridan makes two products, Simple and Complex. As their names su

Question

Exercise 7-14 Sheridan makes two products, Simple and Complex. As their names suggest, Simple is the more basic product, and Complex comes with all the bells and whistles. The company has always allocated overhead costs to products based on machine hours. Last year, the company implemented an activity-based costing system, and managers determined the following activity pools and rates based on total overhead of $1,485,700 Rate Assembly $1.25 per direct labor hour $9.75 per machine hour $18 per batch $107,700 direct to Complex Setups Bonding Only the Complex product requires bonding, so all the costs of bonding should be allocated to Complex. The following data relate to both products. Units produced Direct labor hours Machine hours Batches Simple 128,000 238,000 51,000 3,000 Complex 46,000 109,000 32,000 4,500

Explanation / Answer

Req 1: Total machine hours: (51,000+32000): 83000 MH Pre-determined OH rate: Estimated OH/ Estimated MH $ 1485,700/83,000 = $ 17.90 per MH SIMPLE COMPLEX TOTAL Machine Hourrs 51000 32,000 Overhead rate 17.9 17.9 Total OH to product 912900 572800 1,485,700 SIMPLE COMPLEX Total OH 912900 572,800 Number of units 128000 46000 OH cost per unit 7.13 12.45 Req 2: SIMPLE COMPLEX TOTAL Assembly 297500 136250 Fabrication 497250 312,000 Setups 54000 81,000 bonding 107,700 Total OH 848750 636,950 1,485,700 SIMPLE COMPLEX Total OH 848750 636,950 Number of units 128000 46000 OH cost per unit 6.63 13.85

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