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Upriver Parts manufactures two products, V-1 and V-2, at its River Plant. Selected data for an...

Upriver Parts manufactures two products, V-1 and V-2, at its River Plant. Selected data for an average month for the two products follow. V-1 V-2 Units produced 10,000 1,000 Direct materials cost per unit $ 2 $ 4 Machine hours per unit 1 2 Production runs per month 80 40 Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow. Machine depreciation $ 36,000 Setup labor 18,000 Material handling 14,400 Total $ 68,400 Required: a. Upriver currently applies overhead on the basis of machine hours. What is the predetermined overhead rate for the month? (Round your answer to 2 decimal places.) b. Upriver is thinking of adopting an ABC system. They have tentatively chosen the following cost drivers: machine hours for machine depreciation, production runs for setup labor, and direct material dollars for material handling. Compute the cost driver rates for the proposed system at Upriver.

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Solutions

Expert Solution

Part A: Calculation of predetermined overhead rate on the basis of machine hours:

Formula:

Predetermined rate = Manufacturing overheads / Machine hours

Manufacturing overhead = $68400

Machine hours = 10000 units * 1 machine hour + 1000 * 2 machine hour = 12000 machine hours

Predetermined rate = $68400 / 12000 machine hours = $5.70 per machine hour

Part B: Calculation of cost driver rates:

Machine hours = 10000 units * 1 machine hour + 1000 * 2 machine hour = 12000 machine hours

Production runs = 80 + 40 = 120 runs

Direct material used in V-1 & V-2 = 10000 units * 2 + 1000 * 4 = $24000

All the best....

ekkarill92 answered 2 years ago
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