Question

Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate

Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:

              Budgeted Volume (Units)            Direct Labor Hours Per          Unit Price Per Unit Direct Materials Per Unit

Pistons        5,000                                0.50                            $45          $ 8
Valves           12,500                                             0.30       17 3
Cams           1,500                                               0.20                              60                                  40

The estimated direct labor rate is $30 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $163,750. If required, round all per unit answers to the nearest cent.

a. Determine the plantwide factory overhead rate.

$____ per dlh

b. Determine the factory overhead and direct labor cost per unit for each product.

                  Direct Labor Hours Per Unit           Factory Overhead Cost Per Unit            Direct Labor Cost Per Unit

Pistons                 ____dlh                                           $____                                              $____
Valves                  ____dlh                                            $____    $____
Cams                   ____dlh                                           $____    $____

c. Use the information provided to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.

                                                                                           Orange County Engine Parts Inc.
                                                                                   Product Line Budgeted Gross Profit Reports
                                                                                     For the Year Ended December 31, 20Y2

                                                          Pistons             Valves               Cams

Revenues                                             $____    $____    $____

Product Costs
Direct Materials                                    $____    $____    $____
Direct Labor                                         $                       $                       $
Factory Overhead                               $                       $                       $
Total Product Costs                              $ $ $
Gross profit                                          $                       $ $
Gross profit percentage of sales                 %                     %                      %

Answer 1

	Budgeted Volume(Units)	Direct Lab Hours per unit	Price per Unit	Direct Mat per Unit	Direct Labor hours expected	Revenues
Pistons	5000	0.5	$45	$8	2500	$225,000
Valves	12500	0.3	17	3	3750	$212,500
Cams	1500	0.2	60	40	300	$90,000
TOTAL					6550
a) plant wide factory overhead rate = 163750/6550 = $25 per DLH
b)
	Direct Lab hrs per unit	Factory overhead per unit	Direct Labor Cost per unit
Pistons	0.5	12.5	15
Valves	0.3	7.5	9
Cams	0.2	5	6
c)
Product Line Budgeted Gross Profit Reports
	Pistons	Valves	Cams
Revenues	$225,000	$212,500	$90,000
Less:Product Costs:
Direct Materials	40000	$37,500	$60,000
Direct Labor	75000	$112,500	$9,000
Fact. Overhead	62500	$93,750	$7,500
Total Product costs	177500	243750	76500
Gross Profit	$47,500	($31,250)	$13,500
Gross profit percentage of sales	21.11%	-14.71%	15%