Consider the following data for two products of Gitano Manufacturing. (Loss amou
ID: 2535906 • Letter: C
Question
Consider the following data for two products of Gitano Manufacturing. (Loss amounts should be indicated with a minus sign. Round "OH rate and cost per unit" answers to 2 decimal places.) Product A Product B 2,000 units 0.25 DLH per unit $ 3 per unit Number of units produced Direct labor cost ( $24 per DLH) Direct materials cost 10,000 units 0.20 DLH per unit $ 2 per unit Activity Overhead costs Machine setup Materials handling Quality control inspections $121,000 48,000 80,000 $249,000 Required 1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line Activity Driver OH Cost per unit Overhead Assigned ProductA Product B Plantwide OH rate Total Overhead Cost Units Produced Product A Product B 2. If the market price for Product A is $20 and the market price for Product B is $60, determine the profit or loss per unit for each product. Product A Product B Market priceExplanation / Answer
Solution:
Part 1 --- Calculation of total production cost per unit for each product
First of all, for the purpose of allocation Overhead Costs, we need to find out the overhead allocation rate.
Overhead Allocation Rate = Total Estimated Overhead Costs / Allocation base
Here allocation base given is direct labor hours
Total Direct Labor Hours = (10,000 Units of A x 0.20 DLH per unit) + (2,000 Units of B x 0.25 DLH per unit)
= 2,000 + 500
= 2,500 DLHs
Total Overhead Costs
$249,000
$99.60
(249,000 / 2500)
per DLH
Total Direct Labor Hours
2,500
Overhead Assigned
Activity Driver
Plantwide OH rate
Total Overhead Cost
Units Produced
OH Cost per unit
Product A
2,000 DLH
$99.60
$199,200
10,000
$19.92
Product B
500 DLH
$99.60
$49,800
2,000
$24.90
Total Production Cost per unit
Product A
Product B
Direct Materials cost per unit
$2.00
$3.00
Direct labor cost per unit
$4.80
(0.20*$24)
$6.00
(0.25*$24)
Assigned Overhead Per unit
$19.92
$24.90
Total Production Cost per unit
$26.72
$33.90
Part 2 --- Profit or loss per unit for each product
Product A
Product B
Market Price per unit
$20.00
$60.00
Total Production Cost per unit
$26.72
$33.90
Profit / (loss) per unit
($6.72)
$26.10
Part 3 –
Machine Setup
Overhead Costs
$121,000
$5,500
(121,000 / 22)
per setup
Number of Setups (10+12)
22
Materials handling
Overhead Costs
$48,000
$12,000
(48000 / 4)
per part
Number of parts required (1+3)
4
Quality control inspection
Overhead Costs
$80,000
$320
(80000/250)
per part
Inspection hours required (40+210)
250
Overhead Assigned
Activity Driver
Activity Rate
Total Overhead Costs
Product A
Machine Setup
10
setups
$5,500
per setup
$55,000
Materials handling
1
part
$12,000
per part
$12,000
Quality Control
40
hours
$320
per hour
$12,800
Total
$79,800
Production Units
10,000 Units
Overhead Cost per unit
$7.98
Overhead Assigned
Activity Driver
Activity Rate
Total Overhead Costs
Product B
Machine Setup
12
setups
$5,500
per setup
$66,000
Materials handling
3
part
$12,000
per part
$36,000
Quality Control
210
hours
$320
per hour
$67,200
Total
$169,200
Production Units
2,000 Units
Overhead Cost per unit
$84.60
Total Production Cost per unit
Product A
Product B
Direct Materials cost per unit
$2.00
$3.00
Direct labor cost per unit
$4.80
(0.20*$24)
$6.00
(0.25*$24)
Assigned Overhead Per unit
$7.98
$84.60
Total Production Cost per unit
$14.78
$93.60
Part 4 --- Profit or loss per unit for each product
Product A
Product B
Market Price per unit
$20.00
$60.00
Total Production Cost per unit
$14.78
$93.60
Profit / (loss) per unit
$5.22
($33.60)
Part 4.2 -- Yes
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Total Overhead Costs
$249,000
$99.60
(249,000 / 2500)
per DLH
Total Direct Labor Hours
2,500
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