Question

Baird Corporation estimated its overhead costs would be $22,400 per month except for January when it pays the $219,240 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $241,640 ($219,240 + $22,400). The company expected to use 7,800 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 3,900 units of product in each month except July, August, and September, in which it produced 4,900 units each month. Direct labor costs were $23.40 per unit, and direct materials costs were $11.90 per unit.


Required

A) Calculate a predetermined overhead rate based on direct labor hours.

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

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

D) Determine the selling price for the product, assuming that the company desires to earn a gross margin of $20.30 per unit.

A) Calculate a predetermined overhead rate based on direct labor hours. (Round your answer to 2 decimal places.

	Predetermined overhead rate per labor hour

B-D) Determine the total allocated overhead cost, the cost per unit of product and the selling price for the product for January, March, and August. Assume that the company desires to earn a gross margin of $20.30 per unit. (Do not round intermediate calculations. Round "Cost per unit" and "Price" to 2 decimal places.)

	January March August Total allocated overhead cost Cost per unit Price

Answer 1

A) Predetermined overhead rate = Estimated overheads/Estimated direct labor hours = $488040/99600 = $4.90 per direct labor hour

Estimated overheads = ($22400 x 12) + $219240 = $268800 + $219240 = $488040

Estimated direct labor hours = (7800 x 9) + (9800 x 3) = 70200 + 29400 = 99600

B) to D)

	January	March	August
Total allocated overhead cost	38220	38220	48020
Cost per unit	$             45.10	$             45.10	$             45.10
Price	$             65.40	$             65.40	$             65.40

Working:

	January	March	August
Total allocated overhead cost	($4.90 x 7800)	($4.90 x 7800)	($4.90 x 9800)
Cost per unit:
Direct materials	11.90	11.90	11.90
Direct labor	23.40	23.40	23.40
Overheads	9.80	9.80	9.80
	($38220/3900)	($38220/3900)	($48020/4900)
Cost per unit $	45.10	45.10	45.10
Price:
Cost per unit $	45.10	45.10	45.10
Gross margin	20.30	20.30	20.30
Selling price $	65.40	65.40	65.40