(a) The overhead will be apportioned on the basis of the total labor hours consu
ID: 373961 • Letter: #
Question
(a)
The overhead will be apportioned on the basis of the total labor hours consumed by each of the models. This is shown in the following calculations.
We will first distribute the total direct labor hour of 94,000 to these two models based on their volume and direct labor hour consumed per unit as shown below.
We will use the above ratio to apportion the total cost of overhead.
The final cost per unit is then calculated in the following table.
(b)
In ABC, we will apportion the overheads on the basis of the given cost drivers. As a first step, we have found the corresponding ratio for different models based on the consumption of cost drivers. This is shown in the following table.
Now, different components of overhead will be apportioned on the basis of the above-found ratio.
The final cost per unit is then calculated in the following table.
(c)
Doing ABC, it became clear that the company is losing money for the product Short. So, it must revise the pricing of Short.
Long Short Total Annual production 35000 10000 45000 Direct labor hours/ unit 2 2.4 Direct labor hours =35000*2=70000 =10000*2.4=24000 94000 Ratio of direct labor hours =70/94=0.74 =24/94=0.26 1Explanation / Answer
Problem 5 (Extra Credit, 20 points) Upton Manufacturing Corporation has a traditional costing system in which it allocates manufacturing overhead costs to its products using a pre-determined overhead rate based on direct labor hours. The company has two products, Long and Short. The following data describes the products: Long Short Direct materials per unit Direct labor per unit Direct labor hours per unit $14.20 $48.30 $16.80 $25.60 2.00 2.40 Annual production 35,00010,000 If the company's estimated total manufacturing overhead for the year is $2,250,000, and the estimated total direct labor-hours for the year is 94,000, what is the total cost per unit for the Long and Short products using this overhead allocation scheme? a.
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