Question

Hercules Hair Restorer Inc. (HHRI) makes many varieties of hair restoration products which are sold under well-known marketing labels. A single batch contains 10,000 8 oz. bottles and takes two days to make. Typically 15 batches are completed per month, for different brands. Basic cost data for the month of January appears below.

Hair by Zeus	Bottle	Batch	Cost per		January' s other expenses
Oil, fl. oz.	2		$3		Supervision	$8,000
Lotion, fl. oz.	4		$1		Indirect materials	$2,200
Zeus potion, fl. oz.	1/4		$24		Equipment deprec & repairs	$14,520
Alcemena scent	1/16		$48		Plant manager's salary	$6,500
Bottle, cap, label	1		$0.4		Utilities	$1,800
Direct labor, hour		50	$14			$33,020
Machine hours		8

HHRI appoints a new CEO, who decides to increase production targets to 200 batches per year. She also hires a management accountant who decides to apply normal costing and does some research into cost behavior. Basic product data still applies. New information appears below.
  

Estimated overheads for year		% fixed
Supervision	$96,000	100%
Indirect materials	$30,800	60%
Equipment depreciation	$126,240	100%
Equipment repairs	$48,000	30%
Plant manager's salary	$84,500	100%
Utilities	$27,000	20%
	$412,540

Require: If HHRI uses a plant-wide rate based on a single cost pool, please calculate full cost for both machine hours and direct labor hours. (10 points)

Hint: When a single cost pool is used, the planned cost per batch is the same whichever cost driver is employed, because ultimately, all overheads have to be charged to production

Answer 1

1)
	Bottle	Cost per	Total Cost
Oil, fl. oz.	2	$             3.00	$             6.00
Lotion, fl. oz.	4	$             1.00	$             4.00
Zeus potion, fl. oz.	0.25	$           24.00	$             6.00
Alcemena scent	0.06	$           48.00	$             3.00
Bottle, cap, label	1	$             0.40	$             0.40
Direct material per bottle			$           19.40
Bottles per batch	10000		$ 1,94,000.00
Conversion Cost per Batch
Direct Labour	50	14	$         700.00
Overhead per DLH	50	$           44.03	$      2,201.33
Actual overhead rate = $33020/(50DLH x 15 batch)	$           44.03	Per DLH
Full cost per Batch			$ 1,96,901.33
Full Cost per Bottle			$           19.69
Actual overhead Rate = Estimated overhead/Estimated cost drivers units)
Estimated Cost drivers = Planned batch x Per Batch
Actual overhead per direct labour = $412,540 /200 x 50	$           41.25
Actual overhead per Machine hours = 4412,540/(200*8)	$         257.84
	PER DLH	PER MH
Direct Materials	$ 1,94,000.00	$ 1,94,000.00
Direct Labour	$         700.00	$         700.00
Overhead per DLH = 50 x 41.25	$      2,062.70
Overhead per MH = 8 x 257.84		$      2,062.70
Total full cost	$ 1,96,762.70	$ 1,96,762.70
Full Cost Per Bottle	$           19.68	$           19.68