Finch Corporation estimated its overhead costs would be $23,400 per month except

Question

Finch Corporation estimated its overhead costs would be $23,400 per month except for January when it pays the $116,400 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $139,800 ($116,400 $23,400). The company expected to use 7,800 direct labor hours per month except during July, August, and September when the company expected 9,700 hours of direct labor each month to build inventories for high demand that normally occurs during the Christmas season. The company's actual direct labor hours were the same as the estimated hours. The company made 3,900 units of product in each month except July, August, and September, in which it produced 4,850 units each month. Direct labor costs were $24.00 per unit, and direct materials costs were $10.20 per unit. Required a. Calculate a predetermined overhead rate based on direct labor hours b. Determine the total allocated overhead cost for January, March, and August. c. Determine the cost per unit of product for January, March, and August. d. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $20.20 per unit. Complete this question by entering your answers in the tabs below. Req A Reqs B to D Calculate a predetermined overhead rate based on direct labor hours. (Round your answer to 2 decimal places.) Predetermined overhead rate per labor hour

Explanation / Answer

Answer a Calculation of predetermined overhead rate based on direct labour hours Predetermined Overhead rate = Estimated Overheads for the year / Estimated direct labour hours Estimated overheads for the year = ($23400*11) + $139800 = $397200 Estimated direct labour hours = (7800 hours * 9) + (9700 hours * 3) = 99300 direct labour hours Predetermined Overhead rate = $397200 / 99300 direct labour hours = $4 per direct labour hour Answer b Direct Labour hours required per unit = Actual direct labour hours for the year / Total Units produced in a year Direct Labour hours required per unit = 99300 direct labour hours / [(3900 units * 9) + (4850 units * 3)]   = 2 direct labour hours per unit Calculation of total allocated overhead cost for January , March and August January March August Units produced            3,900            3,900            4,850 x Direct Labour hours per unit                    2                    2                    2 Total Direct Labour hours            7,800            7,800            9,700 x Overhead rate per direct labour hour $4 $4 $4 Overhead allocated $31,200 $31,200 $38,800 Answer c Calculation of Cost per unit for January,March and August January March August Direct Material $10.20 $10.20 $10.20 Direct Labour $24.00 $24.00 $24.00 Overheads $8.00 $8.00 $8.00 Cost per Unit $42.20 $42.20 $42.20 Answer d Determination of selling price January March August Cost per unit $42.20 $42.20 $42.20 Add : Gross Margin per unit $20.20 $20.20 $20.20 Price per unit $62.40 $62.40 $62.40

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