Question

6. Determine the new overhead allocations for the Purchase Orders if the total overhead cost for the purchasing department is $60,000 and the orders for the products are: Piston- 300, Crankshaft-500, Rear Axle-100, and Exhaust Manifold-100. Determine the unit purchasing OH cost for each of the four product produced and compare them with those in Table 3.4. The total quantities are the same as those listed in Table 3.4. Table 3.4: Unit cost determination Total # of Total OH OH Rate Activity Cost - $ (S/unit) 40 13,000 10,000 520,000 40,000 Casting Products Produced Crank- Rear Exhaust Production Data Piston shaft Axel Manifold Production Units 38,000 8,000 6,700 34,000 Selling Price: $/unit 10 132 75 23 1,000 5,000 2,000 5,000 Utility Cost: Machine hours 2,000 4,000 2,000 2,000 Direct Unit Costs and Overhead Activities Directly Related to Products Crank- Rear Exhaust Production Costs shaft Axel Manifold Direct Materials S/unit 4.000 32.000 19.000 16.000 Labor S/unit S/unit 1.053 25.000 11.940 5.882 Purchase OH S /unit 0.177 2.100 1.672 0.626 Material Handling $/unit 0.211 1.750 2.687 0.471 Depreciation Expenses S/unit 2.632 25.000 14.925 2.941 Machine Utility $/unit 0.211 2.000 1.194 0.235 Total Direct Costs S/unit 8.284 87.850 51.418 16.155

Answer 1

OH rate = Total OH cost/Total # of activity = $60000/(300 + 500 + 100 + 100) = $60000/1000 = $60 per purchase order

	Piston	Crankshaft	Rear Axle	Exhaust Manifold
Number of purchase orders	300	500	100	100
x OH rate	60	60	60	60
Overhead allocation	18000	30000	6000	6000
÷ Production units	38000	8000	6700	34000
Unit purchasing OH cost $/unit	0.474	3.750	0.896	0.176

The unit purchasing OH cost increases for Piston and Crankshaft while it decreases for Rear Axle and Exhaust Manifold.