Question

In: Accounting

Munoz Corporation estimated its overhead costs would be $23,900 per month except for January when it...

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.

Solutions

Expert Solution

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
Overhead             31,500             31,500             41,160

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