Question

onovan & 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		10,800			4,600			15,400
Machine-hours used		990			800			1,790
Direct labor-hours		240			120			360
Direct materials costs	$	12,200		$	8,900		$	21,100
Direct labor costs	$	4,800		$	2,400		$	7,200
Manufacturing overhead costs							$	21,155

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	$	4,050		Machine-hours
Supplies		2,870		Materials
Machine depreciation and maintenance		7,496		Machine-hours
Purchasing and storing materials		3,249		Materials
Miscellaneous		3,490		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.

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.

Answer 1

a)
Account	Machine-Hour Related	Materials Related
Utilities	$   4,050.00
Supplies		$  2,870.00
Machine depreciation and maintenance	$   7,496.00
Purchasing and storing materials		$  3,249.00
Miscellaneous	$   3,490.00
Total overhead	$ 11,546.00	$  6,119.00
÷ Total machine hours	÷ 1790 hours
÷ Total materials cost		÷ $21,100
Overhead rate	$          6.45	29.00%
The overhead rates are $6.45 per machine hour and 29% of direct-materials cost.
b)
	Jerseys	Shorts	Total
Machine-hours used	990	800	1,790
Direct materials costs	$ 12,200.00	$  8,900.00	$ 21,100.00
Direct labor costs	$   4,800.00	$  2,400.00	$   7,200.00
Manufacturing overhead costs
Machine-hour related overhead = MH x $6.45	$   6,385.78	$  5,160.22	$ 11,546.00
Materials-related overhead = DM x 29%	$   3,538.00	$  2,581.00	$   6,119.00
Total cost	$ 26,923.78	$19,041.22	$ 45,965.00
Units produced	10,800	4,600	15,400
Cost per unit	$          2.49	$         4.14