Question

The Tanenbaum Company anticipates that in the coming year (a) it will produce 40,000 units of its sole product and require a total of two labor hours per unit; (b) its average labor wage rate will be $12.75 per hour; and (c) it expects to incur indirect production costs of $1,460,000 to produce these 40,000 units. What should it's overhead rate be in the coming year if Tanenbaum used an overhead vehicle of

1. Number of units?

2. Direct labor hours?

3. Direct labor dollars?

Yoshihara Corporation produces two products with the same total prime cost:

Product	Direct Labor	Direct Material
S	$146	$210
T	$200	$156

If Yoshihara uses units of production as its overhear vehicle, the two products also have the same total manufacturing costs. If the company uses direct material dollars as its overhead vehicle, which product do you think will end up costing more? Why?

Answer 1

A
PARTICULARS
PRODUCTION UNITS	40000
PER UNIT LABOUR HRS	2
AVERAGE LABOUR COST	12.75		$
INDIRECT PRODUCTION COST	1460000
NUMBER OF UNITS
LABOUR HRS NEEDED for 40000 UNITS	40000*2		80000
LABOUR COST	80000*12.75		1020000	25.5
OVER HEADS ALLOCATED ON THE BASIS OF					PER UNIT
NUMBER OF UNITS	1460000/40000	PER UNIT	36.50	1*36.50	36.50
DIRECT LABOUR HOURS	1460000/80000	PER HR	18.25	2*18.25	36.50
DIRECT LABOURDOLLARS	1460000/(80000*12.75)	PER DOLLAR	1.43	12.75*2*1.431	36.50
B
Product	Direct Labor	Direct Material
S	$146	$210
T	$200	$156
	PRODCT1	PRODUCT 2
SUPPOSE OVERHEADS ARE 1460000, AND NUMBER OF UNITS 40000
	AMOUNT IN $
ALLOCATOF OVER HAEDS ARE BASED ON MATERAIL COST.	LABOUR	MATERIAL	OHS	TOTAL/UNIT
S	146	210	20.94	376.94
T	200	156	15.56	371.56
	346	366
IF BASED ON UNITS COST	1460000/40000	1460000/40000
	36.5	36.5
IF BASED ON MATERIAL COST	1460000*210/366	1460000*156/366
	837704.92	622295.08
PER UNIT OH COST IF BOTH ARE PORODUCED 40000	20.94	15.56
IF THE ALLOCATION OF OH ARE BASED ON RM COST THE TOTAL COST OFPRODUCT S IS HIGHER