Question

Munoz Corporation estimated its overhead costs would be $23,900 per month except for January when it pays the $120,180 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $144,080 ($120,180 + $23,900). The company expected to use 7,500 direct labor hours per month except during July, August, and September when the company expected 9,800 hours of direct labor each month to build inventories for high demand that normally occurs during the Christmas season. The company’s actual direct labor hours were the same as the estimated hours. The company made 3,750 units of product in each month except July, August, and September, in which it produced 4,900 units each month. Direct labor costs were $24.20 per unit, and direct materials costs were $10.10 per unit.


Required

1. Calculate a predetermined overhead rate based on direct labor hours.

2. Determine the total allocated overhead cost for January, March, and August.

3. Determine the cost per unit of product for January, March, and August.

4. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.20 per unit.

Answer 1

1. Predetermined overhead rate based on direct labor hours is $4.2
2. Total allocated overhead cost
January $ 31500
March $31500
August $ 41160
3. Cost per unit is $ 66.90
4. Desired selling price is $88.10
Basic Information
Particulars	Overhead cost	Insurance	Direct labour Hours	Produced units	Direct labour Cost per hour	Direct material cost per Unit
January	23,900	10,015	7,500	3,750	24	10
February	23,900	10,015	7,500	3,750	24	10
March	23,900	10,015	7,500	3,750	24	10
April	23,900	10,015	7,500	3,750	24	10
May	23,900	10,015	7,500	3,750	24	10
June	23,900	10,015	7,500	3,750	24	10
July	23,900	10,015	9,800	4,900	24	10
August	23,900	10,015	9,800	4,900	24	10
September	23,900	10,015	9,800	4,900	24	10
October	23,900	10,015	7,500	3,750	24	10
November	23,900	10,015	7,500	3,750	24	10
December	23,900	10,015	7,500	3,750	24	10
Total	2,86,800	1,20,180	96,900	48,450
Predetermained Overhead Rate
Particulars	Values
Overhead cost for the year	4,06,980
Total Direct labour Hours	96,900
Overhead Rate	4.20
Calculation of total allocation overhead
Particulars	January	March	August
Overhead rate	4.20	4.20	4.20
Direct labour Hours	7,500	7,500	9,800
Total allocated cost	31,500.00	31,500.00	41,160.00
Calculation of cost per unit
Particulars	January	March	August
Direct material Cost	37,875	37,875	49,490
Direct labour Cost	1,81,500	1,81,500	2,37,160
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