Question

Juguette's Boise plant produces two types of battery-operated toys: robots and race cars. The Boise plant uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year:

Estimated overhead	$350,000
Expected activity (direct labor hours)	50,000
Actual activity (direct labor hours):
Robots	10,000
Race cars	40,000
Units produced:
Robots	50,000
Race cars	250,000

1. Calculate the predetermined plantwide overhead rate.
2. Calculate the applied overhead for each product.
3. Calculate the overhead cost per unit for each product.

Answer 1

Solution:

Pre-determined plantwide overhead rate = Estimated Overhead Costs / Estimated Activity units

Note: Here direct labor hours is the allocation base / activity base

Therefore,

Predetermined plantwide Overhead rate = Estimated Overhead Costs / Estimated direct labor hours

= $350,000 / 50,000 direct labor hours

= $7 per direct labor hours

Applied Overhead = Overhead Rate * Actual Activity output

Note: Here Actual activity output for robots = 10,000 direct labor hours

   Actual activity output for race cars = 40,000 direct labor hours

Therefore,

Applied Overhead for Robots = $7 * 10,000 direct labor hours

= $70,000

Applied Overhead for Race Cars = $7 * 40,000 direct labor hours

= $280,000

Overhead Cost per unit = Total Overhead Cost / Total Units

Overhead cost per unit for robots = $70,000 / 50,000 units

= $1.40

Overhead Cost per unit for Race cars = $280,000 / 250,000 units

= $1.12