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Colonels uses a traditional cost system and estimates next year's overhead will be $180,000, with the...

Colonels uses a traditional cost system and estimates next year's overhead will be $180,000, with the estimated cost driver of 180,000 direct labor hours. It manufactures three products and estimates the following costs:

	Small	Medium	Large
Units	31,000	10,000	3,000
Direct Material Cost	$6	$9	$8
Direct Labor Hours per Unit	3	6	9

If the labor rate is $25 per hour, what is the per-unit cost of each product?

	Small	Medium	Large
Cost per unit	$	$	$

Custom's makes two types of hats: polyester (poly) and silk. There are two cost pools: setup, with an estimated $100,000 in overhead, and inspection, with $25,000 in overhead. Poly is estimated to have 750,000 setups and 150,000 inspections, while silk has 260,000 setups and 70,000 inspections. How much overhead is applied to each product?

Activity	Rate	Applied to Poly	Applied to Silk
Setup	$0.08	$	$
Inspection	0.08
Total		$	$

Expert Solution

Question 1:

Per-unit cost

Step 1: Predetermined overhead rate

Predetermined overhead rate = Total Overhead costs / Direct labor hours

Predetermined overhead rate = $180,000 / 180,000 direct labor hours = $1.00 per direct labor hour

Step 2: Manufacturing overheads per unit

Small = 3 direct labor hours * $1.00 per direct labor hour = $3.00

Medium = 6 direct labor hours * $1.00 per direct labor hour = $6.00

Large = 9 direct labor hours * $1.00 per direct labor hour = $9.00

Step 3: Direct labor cost per unit

Small = 3 direct labor hours * $25.00 per direct labor hour = $75.00

Medium = 6 direct labor hours * $25.00 per direct labor hour = $150.00

Large = 9 direct labor hours * $25.00 per direct labor hour = $225.00

Step 3: Per-unit cost

Particulars	Small	Medium	Large
Direct Material cost per unit	$6.00	$9.00	$8.00
Direct Labor cost per unit	$75.00	$150.00	$225.00
Manufacturing overhead cost per unit	$3.00	$6.00	$9.00
Per-unit cost	$84.00	$165.00	$242.00

Question 2:

Activity	Rate	Applied to Poly	Applied to Silk
Setup	$0.08	$60,000	$20,800
Inspection	$0.08	$12,000	$5,600
Total		$72,000	$26,400

Working notes:

Setup

Applied to poly = 750,000 setups * $0.08 = $60,000

Applied to silk = 260,000 setups * $0.08 = $20,800

Inspection

Applied to poly = 150,000 inspections * $0.08 = $12,000

Applied to silk = 70,000 inspections * $0.08 = $5,600

All the best...

ekkarill92 answered 1 year ago

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