Question

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $330,400. During that time, the company produced 14,400 units of the M-008 and 2,500 units of the M-123. The direct costs of production were as follows:

M-008 M-123 Total

Direct materials $ 115,200 $ 100,000 $ 215,200

Direct labor 115,200 50,000 165,200

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Activity Level

Cost Driver Costs M-008 M-123 Total

Number of machine-hours $ 153,900 1,000 9,000 10,000

Number of production runs 80,000 20 20 40

Number of inspections 96,500 15 30 45

Total overhead $ 330,400

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round your intermediate calculations and final answers to 2 decimal places.)

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

Answer 1