Question
In: Accounting
Airborne Industries uses a two-stage allocation method to assign costs to its products. The following information...
Airborne Industries uses a two-stage allocation method to assign
costs to its products. The following information has been provided
for the month:
| Product X | Product Y | Product Z | Total | ||||||||||||
| Units | 3,000 | 2,000 | 1,000 | 6,000 | |||||||||||
| Machine hours | 4,000 | 8,000 | 8,000 | 20,000 | |||||||||||
| Direct labor hours | 2,000 | 3,000 | 5,000 | 10,000 | |||||||||||
| Direct materials | $ | 60,000 | $ | 60,000 | $ | 75,000 | $ | 195,000 | |||||||
| Direct labor | 45,000 | 80,000 | 175,000 | 300,000 | |||||||||||
| Manufacturing overhead | |||||||||||||||
| Utilities (machine related) | $ | 13,000 | |||||||||||||
| Supplies (labor related) | 8,000 | ||||||||||||||
| Training (labor related) | 20,000 | ||||||||||||||
| Supervision (labor related) | 37,000 | ||||||||||||||
| Machine depreciation (machine related) | 34,000 | ||||||||||||||
| Lease on factory (machine related) | 66,000 | ||||||||||||||
| Miscellaneous (labor related) | 15,000 | ||||||||||||||
| Total manufacturing overhead | $ | 193,000 | |||||||||||||
Required:
(a) Allocate the manufacturing overhead to two cost pools:
machine-related and labor-related.
(b) Compute the predetermined overhead rate for the two pools,
using machine hours and direct labor hours as the bases.
(c) Compute the total costs of production for each of the three
products.
Solutions
Expert Solution
(a) Allocation of manufacturing overhead to two cost pools:
| Manufacturing overhead | Machine-related | Labor-related |
| Utilities | $13,000 | |
| Supplies | $8,000 | |
| Training | $20,000 | |
| Supervision | $37,000 | |
| Machine depreciation | $34,000 | |
| Lease on factory | $66,000 | |
| Miscellaneous | $15,000 | |
| Total | $113,000 | $80,000 |
(b) Perdetermined overhead rate for machine-related overhead cost = Total machine-related overhead cost / Total machine hours required for all products = $113,000 / 20,000 machine hours = $5.65 per machine hour
Predetermined overhead rate for labor-related overhead cost = Total labor-related overhead cost / Total direct labor hours required for all products = $80,000 / 10,000 direct labor hours = $8 per direct labor hour
(c) Calculation of total cost of production :
| Product X | Product Y | Product Z | |
| Direct marterials cost | $60,000 | $60,000 | $75,000 |
| Direct labor cost | $45,000 | $80,000 | $175,000 |
| Manufacturing overhead : | |||
| Machine-related overhead [ machine hour * predetermined overhead rate for machine related overheas cost ] | $22,600 | $45,200 | $45,200 |
| Labor-related overhead [ Direct labor hours * predetermined rate for labor related overhead cost ] | $16,000 | $24,000 | $40,000 |
| Total cost of production | $143,600 | $209,200 | $335,200 |
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