Thornton Corporation estimated its overhead costs would be $23,300 per month except for January when it...

Thornton Corporation estimated its overhead costs would be $23,300 per month except for January when it pays the $182,880 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $206,180 ($182,880 + $23,300). The company expected to use 7,900 direct labor hours per month except during July, August, and September when the company expected 9,100 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 3,950 units of product in each month except July, August, and September, in which it produced 4,550 units each month. Direct labor costs were $24.00 per unit, and direct materials costs were $10.20 per unit.

Required

Calculate a predetermined overhead rate based on direct labor hours.
Determine the total allocated overhead cost for January, March, and August.
Determine the cost per unit of product for January, March, and August.
Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.30 per unit.

Expert Solution

a. Predetermined overhead rate = Estimated Total Overhead / Expected Total Direct Labor Hours.
Estimated total overhead = $ 23,300 x 12 + $ 182,880 = $ 462,480.
Expected total direct labor hours = 7,900 hous x 9 + 9,100 hours x 3 = 98,400.
Predetermined overhead rate = $ 462,480 / 98,400 = $ 4.70 per direct labor hour.

b. Total allocated overhead cost :
January : 7,900 hours x $ 4.70 = $ 37,130.
March : 7,900 hours x $ 4.70 = $ 37,130.
August : 9,100 x $ 4.70 = $ 42,770.

c. Cost per unit : Direct Material cost per unit + Direct Labor cost per unit + Overhead cost per unit.
January : $ 10.20 + $ 24.00 + ($ 37,130 / 3,950) = $ 43.60
March : $ 43.60.
August : $ 10.20 + $ 24.00 + $ 42,770 / 4,550 = $ 43.60.

d.
	January	March	August
Total Allocated Overhead Cost	$ 37,130	$ 37,130	$42,770
Cost per Unit	$43.60	$43.60	$43.60
Price(43.60+21.30)	$ 64.90	$ 64.90	$ 64.90

ekkarill92 answered 8 months ago

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