Question

In: Accounting

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $326,400. During that time, the company produced 14,400 units of the M-008 and 2,400 units of the M-123. The direct costs of production were as follows:

M-008 M-123 Total
Direct materials $ 115,200 $ 96,000 $ 211,200
Direct labor 115,200 48,000 163,200

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Activity Level
Cost Driver Costs M-008 M-123 Total
Number of machine-hours $ 154,900 1,000 9,000 10,000
Number of production runs 80,000 10 30 40
Number of inspections 91,500 20 40 60
Total overhead $ 326,400

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

Solutions

Expert Solution

Overhead Assigned = Activity Rate*Driver consumption
Activity Rates are as follows:
Overhead Cost M-008 M-123 Total Driver Activity Rate
Number of machine hours 154,900 1,000 9,000 10,000 15.49
Number of production runs 80,000 10 30 40 2000
Number of inspections 91,500 20 40 60 1525
326,400
Overhead Assigned
M-008 M-123
Number of machine hours 15,490 139,410
Number of production runs 20,000 60,000
Number of inspections 30,500 61,000
Total 65,990 260,410
Total Unit cost
M-008 M-123
Direct Material 115,200 96,000
Direct Labor 115,200 48,000
Overheads 65,990 260,410
Total cost 296,390 404,410
Number of Units 14,400 2,400
Unit Cost          20.58        168.50
Using Direct Labor cost
M-008 M-123
Overhead = Total overheads*Labor cost/Total labor cost 230,400.00 96,000.00
Total Unit cost
M-008 M-123
Direct Material 115,200 96,000
Direct Labor 115,200 48,000
Overheads 230,400 96,000
Total cost 460,800 240,000
Number of Units 14,400 2,400
Unit Cost          32.00        100.00

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