Question

1. Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate

   Isaac Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Isaac Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:

   	Budgeted Volume (Units)		Direct Labor Hours Per Unit		Price Per Unit		Direct Materials Per Unit
   Pistons	6,000		0.30		$40		$ 9
   Valves	13,000		0.50		21		5
   Cams	1,000		0.10		55		20

   The estimated direct labor rate is $20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Isaac Engines is $235,200.

   If required, round all per unit answers to the nearest cent.

   a. Determine the plantwide factory overhead rate.
   $ per dlh

   b. Determine the factory overhead and direct labor cost per unit for each product.

   	Direct Labor Hours Per Unit	Factory Overhead Cost Per Unit	Direct Labor Cost Per Unit
   Pistons	dlh	$	$
   Valves	dlh	$	$
   Cams	dlh	$	$

   Feedback

   a. First calculate:
   Volume x Direct Labor Hours per Unit = Direct Labor Hours per Product. Add all product hours for total direct labor hours.
   Next:
   Total Budgeted Factory Overhead ÷ Total Budgeted Plantwide Allocation Base = Single Plantwide Factory Overhead Rate

   b. Calculate:
   Factory Overhead Cost per Unit = Rate from Req. (a) x Direct Labor Hours per Unit
   Direct Labor Cost per Unit = Direct Labor Rate x Direct Labor Hours per Unit

   c. Use the information provided to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place.

   Isaac Engines Inc.
   Product Line Budgeted Gross Profit Reports
   For the Year Ended December 31, 20Y2
   	Pistons	Valves	Cams
   Cost of goods sold Direct labor Direct materials Factory overhead Finished goods inventory Revenues Work in process	$	$	$
   Product Costs
   Cost of goods sold Direct materials Finished goods inventory Revenues Work in process	$	$	$
   Cost of goods sold Direct labor Finished goods inventory Revenues Work in process
   Cost of goods sold Factory overhead Finished goods inventory Revenues Work in process
   Total Product Costs	$	$	$
   Gross profit (loss)	$	$	$
   Gross profit percentage of sales	%	%	%

Answer 1

a.
	Budgeted Volume (Units)	Direct Labor Hours Per Unit	Total Labour Hours Required
Pistons	6000	0.30	1800
Valves	13000	0.50	6500
Cams	1000	0.10	100
		Total dlh	8400
Budgeted factory overhead	$235,200
Plantwide factory overhead rate	=$235,200/8400
	=$28	per dlh
b.
	Direct Labor Hours Per Unit	Factory Overhead Cost Per Unit @ $28/dlh	Direct Labor Cost Per Unit @ $20/dlh
Pistons	0.30	8.4	6.0
Valves	0.50	14.0	10.0
Cams	0.10	2.8	2.0
c.
Budgeted Volume (Units)	6000	13000	1000
	Pistons	Valves	Cams
Total Sales Value @ $40/21/55 per unit resp.	240000	273000	55000
Less:
Direct Material @ $9/5/20 per unit resp.	54000	65000	20000
Direct Labour @ $6/10/2 per unit resp.	36000	130000	2000
Overheads @ $8.4/14.0/2.8 per unit resp.	50400	182000	2800
Total Product Cost	140400	377000	24800
Gross profit (loss)	99600	(104000)	30200
Gross profit percentage of sales	41.5%	-38.1%	54.9%