Sportway Inc. produces high-quality tennis racquets and golf clubs using a patented forming...

Question:

Sportway Inc. produces high-quality tennis racquets and golf clubs using a patented forming process and high-quality hand-finishing. Products move through two production departments: Forming and Finishing. The company uses departmental overhead rates to allocate overhead costs. Overhead is allocated based on machine-hours in Forming and direct labor cost in Finishing. Information related to estimated volumes and denominator values for the coming year are provided below:

Tennis Racquets Golf Clubs
Annual production and sales $6,300 $9,950
Direct materials per unit $4.60 $3.70
Direct labor cost per unit:
Forming Department $6.00 $4.00
Finishing Department $4.00 $7.00
Machine hours per unit:
Forming Department 0.75 0.25
Finishing Department 0.25 0.50

In addition, the firm budgets manufacturing overhead at $71,500 in the Forming Department and $58,000 in the Finishing Department.

Required

1) Determine the overhead application rate for each department. (Round your answers to 2 decimal places.)

Forming __________ per MH
Finishing __________ per DL$

2) Determine the total cost per unit of tennis and racquets and golf clubs. (Round your answers to 2 decimal places.)

Tennis Racquets Golf Clubs
Total cost per unit __________ __________

Manufacturing Overhead:

Manufacturing overhead figures are costs that cannot be directly traced to products and therefore need to be allocated. The allocating of manufacturing overhead requires the use of an activity as an indicator of the overhead costs incurred. This indicator is often termed a cost driver and will be required in the calculation of a predetermined overhead rate that is used to allocate overhead costs to products. In a traditional costing system, a single volume-based overhead cost driver is used, while in an activity-based costing system, multiple cost drivers are required.

Answer and Explanation: 1

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1) The total budgeted direct labor cost in the Finishing Department is:

  • Direct labor cost = (6,300 x 4) + (9,950 x 7)
  • Direct labor cost = 25,200 +...

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Manufacturing Overhead: Definition, Formula & Examples

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Chapter 22 / Lesson 35
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Learn about manufacturing overhead. Understand what overhead is, learn the manufacturing overhead formula, and see how to calculate manufacturing overhead.


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