Question

Velez Corporation estimated its overhead costs would be $50,000 per month except for January when it pays the $30,000 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $80,000 ($30,000 + $50,000). The company expected to use 7,000 direct labor hours per month except during July, August, and September when the company expected 9,000 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 3,500 units of product in each month except July, August, and September, in which it produced 4,500 units each month. Direct labor costs were $30 per unit, and direct materials costs were $25 per unit.

Required

Calculate a predetermined overhead rate based on direct labor hours.

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

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

Determine the selling price for the product, assuming that the company desires to earn a gross margin of $20 per unit.                                                                                                      

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 per unit.

	January March August Total allocated overhead cost Cost per unit Price

                               

Complete this question by entering your answers in the tabs below.

Req A

Reqs B to D

Calculate a predetermined overhead rate based on direct labor hours.

	Predetermined overhead rate per labor hour

Answer 1

Estimated Overhead Cost	50000*11+80000*1	630,000
Direct Labor Hour	7000*9+9000*3	90,000
Predetermined overhead rate	630000/90000	7.00

	January	March	August
Total allocated overhead cost (7000*7)(7000*7)(9000*7)	49,000	49,000	63,000

	January	March	August
No. of Units	3,500	3,500	4,500
Direct materials@25	87,500	87,500	112,500
Direct labor costs @ 30	105,000	105,000	135,000
Total allocated overhead cost	49,000	49,000	63,000
Total Cost	241,500	241,500	310,500
Cost per Unit	69	69	69

Selling price Per Unit

69+20

89

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