Question

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.)

Answer 1

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