Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant...
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 $286,400.
During that time, the company produced 12,400 units of the M-008 and 2,200 units of the M-123.
The direct costs of production were as follows:
| M-008 | M-123 | |
|---|---|---|
| Direct materials | $99,200 | $99,200 |
| Direct labor | 88,000 | 44,000 |
| Total | $187 200 | $143,200 |
Management determined that overhead costs are caused by three cost drivers.
These drivers and their costs for last year were as follows:
Level
| Cost Driver | M-008 | M-123 | Total |
|---|---|---|---|
| Number of machine-hours | 8,000 | 2,000 | 10,000 |
| Number of production runs | 20 | 20 | 40 |
| Number of inspections | 20 | 35 | 55 |
| Total overhead | $176,500 | $109,900 | $286,400 |
Required:
a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead?
b. What is the total cost per unit produced for each product?
(Round your intermediate calculations and final answers to 2 decimal places.)
Allocating Overhead Cost:
In manufacturing companies, overhead costs are allocated to the products produced based on overhead cost drivers. Overhead costs are divided into cost pools and different cost drivers are used to allocated costs for each pool.
Answer and Explanation: 1
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a. From the way the information is given, it seems that the cost allocated to each product is:
| M-008 | M-123 | Total | |
|---|---|---|---|
| Total overhead | $176,500 | $109,900... |
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