Doaktown Products manufactures fishing equipment for recreational uses. The Mira
ID: 2597694 • 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 $292,000. During that time, the company produced 12,000 units of the M-008 and 2,500 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 $ 96,000 $ 100,000 $ 196,000 Direct labor 96,000 50,000 146,000Explanation / Answer
Doaktown Products
Allocation of estimated overhead cost:
M-008
M-123
overhead cost based on machine hours
$92,800
$23,200
Production overhead
$40,000
$40,000
Inspection cost
$32,000
$64,000
Total allocated overhead cost
$164,800
$127,200
Machine hours
Machine hours
cost per setup
allocated cost
M-008
8,000
$11.60
$92,800
M-123
2,000
$11.60
$23,200
Total
10,000
overhead cost of machine setups
$116,000
Overhead cost per machine hour = 116,000/10,000
$11.60
Production runs
number of runs
cost per setup
allocated cost
M-008
20
$2,000
$40,000
M-123
20
$2,000
$40,000
Total
40
overhead cost
$80,000
Cost per production run = 80,000/40
$2,000
inspection cost
number of inspections
Cost per inspection
Allocated cost
M-008
20
$1,600
$32,000
M-123
40
$1,600
$64,000
Total
60
overhead cost
$96,000
cost per inspection = 96,000/60
$1,600
M-008
M-123
Direct materials
$96,000
$100,000
Direct labor
$96,000.00
$50,000.00
Overhead cost
$164,800.00
$127,200.00
Total cost
$356,800.00
$277,200.00
Number of units
12,000
2,500
Unit Cost
$29.73
$110.88
Total overhead cost = $292,000
Total direct labor cost = $146,000
M-008’s Proportion of direct labor cost = $96,000/$146,000 = 65.75%
M-123’s proportion of direct labor cost = $50,000/$146,000 = 34.25%
Total overhead cost assigned to M-008 = $292,000 x 65.75% = $191,990
Total overhead cost assigned to M-123 = $292,000 x 34.25% = $100,010
Determination of total cost per unit produced for each product (assuming direct labor cost as allocation basis for overhead cost)
M-008
M-123
Direct materials
$96,000
$100,000
Direct labor
$96,000.00
$50,000.00
Overhead cost
$191,990.00
$100,010.00
Total cost
$383,990.00
$250,010.00
Number of units
12,000
2,500
Unit Cost
$32.00
$100.00
Allocation of estimated overhead cost:
M-008
M-123
overhead cost based on machine hours
$92,800
$23,200
Production overhead
$40,000
$40,000
Inspection cost
$32,000
$64,000
Total allocated overhead cost
$164,800
$127,200
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