Question

In: Accounting

Hercules Hair Restorer Inc. (HHRI) makes many varieties of hair restoration products which are sold under...

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

Solutions

Expert Solution

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

ekkarill92 answered 4 months ago
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