Rooney Corporation estimated its overhead costs would be $22,600 per month except for January when it...

Rooney Corporation estimated its overhead costs would be $22,600 per month except for January when it pays the $134,520 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $157,120 ($134,520 + $22,600). The company expected to use 7,700 direct labor hours per month except during July, August, and September when the company expected 9,100 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 3,850 units of product in each month except July, August, and September, in which it produced 4,550 units each month. Direct labor costs were $23.60 per unit, and direct materials costs were $10.80 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 $21.90 per unit.

Expert Solution

Month	Monthly hours
January	7,700
February	7,700
March	7,700
April	7,700
May	7,700
June	7,700
July	9,100
August	9,100
September	9,100
October	7,700
November	7,700
December	7,700
Total Labor hours	96,600

Yearly Overhead (22600*12)			$ 271,200
Annual insurance premium on the manufacturing facility			$ 134,520
Estimated overhead			$ 405,720
Divided by: Total Labor hours			96,600
Predetermined overhead rate based on direct labor hour			$ 4.20

Month	Labor hours	*Total Allocated overhead (Labor hours 4.20)**
January	7,700	$ 32,340
March	7,700	$ 32,340
August	9,100	$ 38,220

Month	January	March	August
Total Allocated overhead	$ 32,340	$ 32,340	$ 38,220
Divided by: Unit produced	3,850	3,850	4,550
Allocated overhead per unit	$ 8.40	$ 8.40	$ 8.40

Direct materials costs per unit	$ 10.80	$ 10.80	$ 10.80
Direct labor costs per unit	$ 23.60	$ 23.60	$ 23.60
Allocated overhead per unit	$ 8.40	$ 8.40	$ 8.40
Cost per unit	$ 42.80	$ 42.80	$ 42.80

Cost per unit	$ 42.80	$ 42.80	$ 42.80
Gross margin of per unit	$ 21.90	$ 21.90	$ 21.90
Selling price for the product	$ 64.70	$ 64.70	$ 64.70

ekkarill92 answered 1 year ago

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