In: Accounting
Zachary Corporation estimated its overhead costs would be
$22,700 per month except for January when it pays the $167,820
annual insurance premium on the manufacturing facility.
Accordingly, the January overhead costs were expected to be
$190,520 ($167,820 + $22,700). The company expected to use 7,500
direct labor hours per month except during July, August, and
September when the company expected 9,400 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
3,750 units of product in each month except July, August, and
September, in which it produced 4,700 units each month. Direct
labor costs were $23.70 per unit, and direct materials costs were
$10.50 per unit.
Required
A. Calculate a predetermined overhead rate based on direct labor hours.
B. Determine the total allocated overhead cost for January, March, and August.
C. Determine the cost per unit of product for January, March, and August.
D. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.70 per unit.
***Please provide detail instructions on the below***:
Requirement A
Calculate a Pre-Determined overheard rate based on direct labor hours. (Round you answer to 2 decimal places).
Question: What is Pre-determined overhead rate per labor hour?
Predetermined overhead rate |
per labor hour |
Requirement B to D
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 $21.70 per unit. (Do not round intermediate calculations. Round "Cost per unit" and "Price" to 2 decimal places.)
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A) | The pre-determined overhead rate should be for the whole year. | |||
Total estimated overhead = 22700*12+167820 = | $ 440,220 | |||
Total estimated direct labor hours = 7500*9+9400*3 = | 95700 | DLH | ||
Pre-determined OH rate = 440220/95700 = | $ 4.60 | |||
B) | January | March | August | |
Number of units produced | 3750 | 3750 | 4700 | |
Direct labor hours worked | 7500 | 7500 | 9400 | |
Total overhead allocated at $4.60 per hour | 34500 | 34500 | 43240 | |
C) | ||||
Material cost at $10.50 | 39375 | 39375 | 49350 | |
Labor cost at $23.70 | 177750 | 177750 | 222780 | |
Overhead allocated | 34500 | 34500 | 43240 | |
Total cost of production | 251625 | 251625 | 315370 | |
Cost per unit | $ 67.10 | $ 67.10 | $ 67.10 | |
D) | Selling price = Cost per unit+$21.70 = | $ 88.80 | $ 88.80 | $ 88.80 |