Question

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

Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott 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	7,000		0.20		$35		$17
Valves	22,000		0.15		9		3
Cams	3,000		0.30		47		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 Elliott Engines is $201,600.

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	$	$

c. Use the information above 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. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.

Elliot Engines Inc.
Product Line Budgeted Gross Profit Reports
For the Year Ended December 31, 20Y2
	Pistons	Valves	Cams
Revenues	$	$	$
Product Costs
Direct materials	$	$	$
Direct labor
Factory overhead
Total Product Costs	$	$	$
Gross profit	$	$	$
Gross profit percentage of sales	%	%	%

Answer 1

a.
Determination of factory overhead rate
Calculation of total direct labour hours
	Budgeted Volume	Direct Labour Hours Per Unit	Total Hours
Piston	7000	0.2	1400
Valves	22000	0.15	3300
Cams	3000	0.3	900
Total Hrs			5600
Overhead Rate		Budgeted Factory Overhead
		Direct labour hour
	=	201600
		5600
	=	36
b.
Determine the factory overhead and direct labor cost per unit for each product.
	Direct Labour Hr Per unit	Factory Overhead Cost per Unit	Direct Labour Cost per Unit
Piston	0.2	7.2	4
Valves	0.15	5.4	3
Cams	0.3	10.8	6
c.
Product Line Budgeted Gross Profit Reports
Particular	Piston	Valves	Cams
Units	7000	22000	3000
Price Per Unit	35	9	47
Revenue	245000	198000	141000
Production Cost
Direct Material	119000	66000	60000
Direct Labour	28000	66000	18000
Factory Overhead	50400	118800	32400
Total Production cost	197400	250800	110400
Gross Profit	47600	-52800	30600
Gross profit % of Sales	19.4%	-26.7%	21.7%