Question

In: Accounting

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions...

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 $244,000. During that time, the company produced 10,000 units of the M-008 and 2,100 units of the M-123. The direct costs of production were as follows.

M-008 M-123 Total
Direct materials $ 80,000 $ 84,000 $ 164,000
Direct labor 80,000 42,000 122,000

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 $ 64,000 8,000 2,000 10,000
Number of production runs 80,000 20 20 40
Number of inspections 100,000 30 20 50
Total overhead $ 244,000

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?

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?

a. M-008 M-123

Total Overhead

Total Unit Cost

b. M-008 M-123

Total Overhead

Total Unit Cost

Solutions

Expert Solution

Ex9-38
overhead rate
number of machine hours 64,000/10000= 6.4 per machine hour
number of production runs 80000/40= 2000 per production run
number of inspections 100,000/50= 2000 per number of inspections
overhead applied
M-008 M-123
number of machine hours 51200.00 12800.00
number of production runs 40000.00 40000.00
number of inspections 60000.00 40000.00
total overhead applied 151200.000 92800.000 244000.000
total unit cost
M-008 M-123
Direct materials 80,000 84,000
direct labor 80,000 42,000
overhead applied 151,200 92,800
total cost (a) 311,200 218,800
units produced (b) 10,000 2,100
cost per unit c=a/b 31.12 104.19
M-008 M-123
total overhead applied 151,200 92,800
total unit cost 31.12 104.19
b) overhead rate = 244000/122000
200.00%
overhead assinged
M-oo8              = 80000*200%
160000
M-123             = 42,000*200%
84000
total unit cost
M-008 M-123
Direct materials 80,000 84,000
direct labor 80,000 42,000
overhead applied 160,000 84,000
total cost (a) 320,000 210,000
units produced (b) 10,000 2,100
cost per unit c=a/b 32.00 100
M-008 M-123
total overhead applied 160,000 84,000
total unit cost 32.00 100

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