Thornton Corporation estimated its overhead costs would be $22,400 per month exc

Question

Thornton Corporation estimated its overhead costs would be $22,400 per month except for January when it pays the $197,190 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $219,590 ($197,190+ $22,400). The company expected to use 7,500 direct labor hours per month except during July, August, and September when the company expected 9,200 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 3,750 units of product in each month except July, August, and September, in which it produced 4,600 units each month. Direct labor costs were $24.30 per unit, and direct materials costs were $10.40 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 $20.60 per unit.

Explanation / Answer

1)Expected overhead: [22400*12]+197190=465990

Estimated hours : [7500*9 months ]+[9200*3] = 95100

predetermined overhead =estimated overhead /estimated hours

                 = 465990/95100

                   = $ 4.9 per DLH

2)

[10.4+24.3+(36750/3750)

10.4+24.3+9.8

44.5

10.4+24.3+(36750/3750)

44.5

[10.4+24.3+(45080/4600]

44.5

Jan March August Total allocated overhead 7500*4.9=36750 7500*4.9=36750 9200*4.9=45080 unit cost [direct material +direct labor +overhead]

[10.4+24.3+(36750/3750)

10.4+24.3+9.8

44.5

10.4+24.3+(36750/3750)

44.5

[10.4+24.3+(45080/4600]

44.5

price [cost+ margin ] 44.5+20.6=65.1 65.1 65.1

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