Question

he Sawtooth Leather Company manufactures leather handbags and moccasins. For simplicity, the company has decided to use a single plantwide factory overhead rate method to allocate factory overhead. Handbags = 60,000 units, 2 hours of direct labor Moccasins = 40,000 units, 3 hours of direct labor Total budgeted factory overhead cost = $360,000 Calculate the amount of factory overhead to be allocated to each unit using direct labor hours. Round your answers to two decimal places, if necessary. Handbags: $ per unit Moccasins: $ per unit

Answer 1

		Handbags	Moccasins
	Allocated Budgeted Factory overheads cost	$       3.00	$       4.50
		per unit	per unit
	Workings:
		Handbags	Moccasins	Total
(i)	Units	60,000	40,000
(ii)	Direct labor hours per unit	2	3
(i) X (ii)	Total Direct labor hours	1,20,000	1,20,000	2,40,000
	Pre - determined overhead rate per direct labor hour	=	Budgeted Factory overheads cost / Total Direct labor hours
		=	$360000 / 240000 Direct labor hours
		=	$       1.50	per unit
		Handbags	Moccasins	Total
(i)	Direct labor hours per unit	2	3
(ii)	Pre - determined overhead rate per direct labor hour	$       1.50	$       1.50
(i) X (ii)	Allocated Budgeted Factory overheads cost	$       3.00	$       4.50
		per unit	per unit