Question

Technical Measurement Company manufactures precision-measuring devices used by industrial companies in various capacities. The devices are produced in two stages: Assembly and Testing. The company has no beginning inventories because all units produced last year were sold by the end of the year. At the beginning of the year, the company has an order of 10,000 units. The company's predetermined overhead rate is based on materials used in assembly and direct labor hours in testing. Information concerning the predetermined overhead rates appears below: Direct labor is paid $30 per hour.

	Assembly	Testing
Budgeted Overhead:	$1,000,000	$500,000
Budgeted material use	2,000,000	50,000
Budgeted direct labor hours	200,000	100,000
Budgeted direct labor cost	3,000,000	1,500,000
Other information regarding the production process:
	Assembly	Testing
Materials requisitioned	$2,200,000	$48,000
Direct labor cost	3,100,100	1,575,000
Actual overhead cost	1,200,000	475,000

Required:

(a) Compute the predetermined overhead rate for each department.
(b) Calculate the total and per unit cost of producing 10,000 units.

Answer 1

(a)Computation the predetermined overhead rate for each department:

given information

Assembly Department

Budgeted Overheads = $1,000,000

Budgeted material use = $2,000,000

Predetermined overhead rate is based on materials used in assembly dpeartment

Predetermined Over Head Rate =Budgeted Over heads/Budgeted material use

=$1,000,000/$2,000,000

=$0.5 per material use

So Predetermined Over Head Rate for Assembly department =$0.5 per materials

Testing Department

Budgeted Overheads = $500,000

Budgeted direct labor hours = 100,000 labor hours

Predetermined overhead rate is based on materials used in assembly dpeartment

Predetermined Over Head Rate =Budgeted Over heads/Budgeted direct labor hours

=$500,000/100,000 hours

=$5 Per labor hour

So Predetermined Over Head Rate for Testing department =$5 per labor hour

(b) Calculate the total and per unit cost of producing 10,000 units:

Particulars	Assembly Department	Testing Department	Total
Materials Cost	$2,200,000	$48,000	$2,248,000
Direct labor cost	$3,100,100	$1,575,000	$4,675,100
Actual overhead cost	$1,200,000	$475,000	$1,675,000
Total Cost		$8,598,100
Total units		10000 units
Per unit Cost(Total Cost/10,000 units)		$859.81 per unit