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ABC Firm produces two products.  Product A is a high-end product that requires more direct labour and...

ABC Firm produces two products.  Product A is a high-end product that requires more direct labour and better materials. Product A sells for $150 per unit.  Product B is sold in vast quantities and is made in huge production runs. Product B sells for $60 per unit.  At the beginning of 2016, ABC made the following estimations and at the end of the year, the following actual amounts were recorded.

                                                        Estimates                               Actuals    

              Sales of Product A                   6,000 units                          6,150 units

              Sales of Product B                  82,300 units                        81,400 units

              Direct labour hours                31,890                                 33,480

              Machine hours                      177,030                               166,600

              Direct labour                      $732,340                             $792,310

              Direct materials                    863,620                               858,200

              Overhead                           1,457,000                            1,491,200

Resource usage for the two products per unit is:

                                                               Product A                           Product B

              DL hours                                         1.2                                         .3

              Machine hours                                   .7                                       2.1

              DL$                                             $42.50                                   $5.80

              DM$                                              15.00                                     9.40

  1. Assume that overhead is applied on the basis of DL hours.  Compute the cost per unit and the gross margin per unit for each product.
  2. Assume that overhead is applied on the basis of machine hours. Compute the cost per unit and the gross margin per unit for each product.
  3. Compute overhead over or under applied for each overhead application base.

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Expert Solution

ekkarill92 answered 2 years ago
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