Question

Case 4

Natha Corporation manufacturers two types of travel mugs: Simple, and Sophisticated. The company budgets to produce 20,000 units of the Simple mugs and 10,000 units of the Sophisticated mugs. Manufacturing takes place in two production departments: Machining and Assembly. The Simple mugs are produced in batches of 200 units; however, due to the more intricate detail included on the Sophisticated mugs, they are produced in batches of 50 units.

The company’s Controller has asked you to compare the plantwide, departmental, and activity- based cost allocation methods. To assist in your analysis, the Controller has provided you with the budgeted cost information for the 2020 fiscal year.

Natha Budgeted Information for the Year Ended December 31, 2020
Machining Department	Simple	Sophisticated	Total
Direct materials cost	$90,000.00	$52,500.00	$142,500.00
Direct labour cost	45,000.00	30,000.00	75,000.00
Overhead costs			120,000.00
Machine hours	12,000	18,000	30,000
Direct labour hours	4,000	1,000	5,000
Assembly Department	Simple	Sophisticated	Total
Direct materials cost	$7,500.00	$15,000.00	$22,500.00
Direct labour cost	22,500.00	37,500.00	60,000.00
Overhead costs			40,000.00
Machine hours	6,000	4,000	10,000
Direct labour hours	3,500	500	4,000

Required:

1. Assume that the corporation is using a single plantwide overhead rate based on machine hours.
   1. Calculate the manufacturing overhead rate.
   2. Calculate the total manufacturing cost for each product line.
   3. Calculate the total manufacturing cost per unit for each product line.

Answer 1

(a) Calculate the manufacturing overhead rate

Total Manufacturing overhead/Total machine hours

($120000 + $40000) / (30000 + 10000) = $4 per MH

(b) Calculate the total manufacturing cost for each product line

	Simple	Sophisticated
Direct materials:
Machining Dept	$    90,000	$               52,500
Assembly Dept	$      7,500	$               15,000
Direct Labor cost:
Machining Dept	$    45,000	$               30,000
Assembly Dept	$    22,500	$               37,500
Total Manufacturing overhead	$    72,000	$               88,000
Total Manufacturing Cost	$ 237,000	$            223,000

Explanations :-

	Simple	Sophisticated
Machine Hours:
Machining Dept	12000	18000
Assembly Dept	6000	4000
Total Machine Hours	18000	22000
X Manufacturing Overhead Rate	$               4	$                         4
Total Manufacturing overhead	$    72,000	$               88,000

(c) Calculate the total manufacturing cost per unit for each product line

Total Manufacturing Cost	$ 237,000	$            223,000
÷ Budgeted Production	$    20,000	$               10,000
Total Manufacturing overhead per unit	$            12	$                       22