Walton Corporation estimated its overhead costs would be $22,700 per month except for January when it...

Walton Corporation estimated its overhead costs would be $22,700 per month except for January when it pays the $138,000 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $160,700 ($138,000 + $22,700). The company expected to use 7,100 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 3,550 units of product in each month except July, August, and September, in which it produced 4,550 units each month. Direct labor costs were $23.90 per unit, and direct materials costs were $10.70 per unit.

a. Calculate a predetermined overhead rate based on direct labor hours.

b.Determine the total allocated overhead cost for January, March, and August.

c.Determine the cost per unit of product for January, March, and August.

d.Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.60 per unit.

Expert Solution

a)
Predetermined overhead rate: Total expected overhead costs / Total expected labor hours
Total expected overhead costs = ($22,700 x 12) + $138,000	$ 410,400.00
Total expected labor hours = [(7,100 x 9) + (9,100 x 3)]	91,200.00	hours
Predetermined Overhead Rate =410,400/91200	$ 4.50	per labor hour

b. c. & d
	January	March	August
Direct labor hours (a)	7100	7100	9100
Units produced (b)	3550	3550	4550

Allocated overhead cost (a x $4.50 )	$ 31,950.00	$ 31,950.00	$ 40,950.00
Direct labor (b x $23.90)	$ 84,845.00	$ 84,845.00	$ 108,745.00
Direct materials (b x $10.70)	$ 37,985.00	$ 37,985.00	$ 48,685.00
Total estimated product cost ( c )	$ 154,780.00	$ 154,780.00	$ 198,380.00	Part b

Cost per unit (d) = c ÷ b	$ 43.60	$ 43.60	$ 43.60	Part c
Price (d + $21.60)	$ 65.20	$ 65.20	$ 65.20	Part d

ekkarill92 answered 4 months ago

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