Doaktown Products manufactures fishing equipment for recreational uses. The Mira
ID: 2568326 • Letter: D
Question
Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.
Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $313,600. During that time, the company produced 13,600 units of the M-008 and 2,400 units of the M-123. The direct costs of production were as follows:
Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:
Required:
a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)
b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)
M-008 M-123 Total Direct materials $ 108,800 $ 96,000 $ 204,800 Direct labor 108,800 48,000 156,800Explanation / Answer
Answer a Calculation of overhead assignment to each product M-008 M-123 Cost driver 1 $122,880 $30,720 Cost driver 2 $35,000 $35,000 Cost driver 3 $27,000 $63,000 Total Overhead cost assigned $184,880 $128,720 Calculation of total unit cost M-008 M-123 Direct Material per unit $8.00 $40.00 Direct Labour per unit $8.00 $20.00 Overhead cost per unit $13.59 $53.63 Total Cost per unit $29.59 $113.63 Working Calculation of activity rate for three cost drivers Cost driver 1 = Total overhead cost / Total number of machine hours = $153600 / 10000 hours = $15.36 per machine hour Cost driver 2 = Total overhead cost / Total number of production runs = $70000 / 40 runs = $1750 per production run Cost driver 3 = Total overhead cost / Total number of inspections = $90000 / 50 inspections = $1800 per inspection Answer b Calculation of overhead assignment to each product M-008 M-123 Overhead assigned - $2 * $108800 $217,600 - $2 * $48000 $96,000 Total Overhead cost assigned $217,600 $96,000 Predetermined Overhead rate = Total Overhead cost / Total Direct Labour cost = $313600 / $156800 = $2 per direct labour dollar Calculation of total unit cost M-008 M-123 Direct Material per unit $8.00 $40.00 Direct Labour per unit $8.00 $20.00 Overhead cost per unit $16.00 $40.00 Total Cost per unit $32.00 $100.00
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