Question

Donovan & Parents produces soccer shorts and jerseys for youth leagues. Most of the production is done by machine. Data on operations and costs for March follow.

	Jerseys			Shorts			Total
Units produced		10,900			5,400			16,300
Machine-hours used		1,010			770			1,780
Direct labor-hours		200			140			340
Direct materials costs	$	12,500		$	7,500		$	20,000
Direct labor costs	$	4,000		$	2,800		$	6,800
Manufacturing overhead costs							$	21,108

Management asks the firm’s cost accountant to compute product costs. The accountant first assigns overhead costs to two pools: overhead related to direct materials and overhead related to machine-hours. The analysis of overhead accounts by the cost accountant follows.

Account	Amount			Related to:
Utilities	$	4,090		Machine-hours
Supplies		2,860		Materials
Machine depreciation and maintenance		7,738		Machine-hours
Purchasing and storing materials		2,940		Materials
Miscellaneous		3,480		Machine-hours

Required:

a. Compute the predetermined overhead rates assuming that Donovan uses machine-hours to allocate machine-related overhead costs and materials costs to allocate materials-related overhead costs. (Round "Machine-related overhead" rate to 2 decimal places and enter "Materials related overhead" rate as a whole percentage)

	Overhead Rate Machine-hour related per hour Materials related %

b. Compute the total costs of production and the cost per unit for each of the two products for March. (Do not round intermediate calculations. Round your "Cost per unit" to 2 decimal places.)

	Jerseys	Shorts
Total Cost
Cost per Unit

Answer 1

Required 1
	Overhead rate
Machine-Hour Related	$ 8.6	Per Hour
Materials Related	29	%

Explanation :

Machine-Hour Related

Predetermined Overhead rates = Total Estimated Cost / Machine Hours used

Predetermined Overhead rates = ($4,090 +$ 7,738 +$ 3,480 ) / 1,780 Machine Hours

Predetermined Overhead rates = $ 15,308 / 1,780 Machine Hours

Predetermined Overhead rates = $ 8.6 Per Machine Hour

Materials Related

Predetermined Overhead rates = Total Estimated Cost / Total Material Costs

Predetermined Overhead rates = ($ 2,860 +$ 2,940 ) / $ 20,000

Predetermined Overhead rates = $ 5,800 / $ 20,000

Predetermined Overhead rates = 29 % of Material cost.

Required 2:
	Jerseys	Shorts
Total Cost	$ 28,811	$ 19,097
Cost Per Unit	$2.64	$3.54

Explanation :
	Jerseys	Shorts
Direct Material	$ 12,500	$ 7,500
Direct labor	$ 4,000	$ 2,800
Overhead related to Machine Hour	$ 8,686 {1010 Hours*$8.6}	$ 6,622 {770 Hours*$8.6}
Overhead related to Material Cost	$ 3,625 {$12,500*29%}	$ 2,175 {$ 7,500*29%}
Total Cost	$ 28,811	$ 19,097
Units Produced	10,900 Units	5,400 Units
Cost per Unit	$2.64 {$28,811/10,900 Units}	$3.54 {$19,097/5,400 Units}