Question

Applied Overhead and Unit Overhead Cost: Plantwide Rates Seco, Inc., produces two types of clothes dryers: deluxe and regular. Seco uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year: Estimated overhead $1,976,000 Expected activity 52,000 Actual activity (direct labor hours): Deluxe dryer 8,000 Regular dryer 44,000 Units produced: Deluxe dryer 16,000 220,000 Regular dryer Required: 1. Calculate the predetermined plantwide overhead rate, using direct labor hours. per hour Calculate the applied overhead for each product, using direct labor hours. Applied overhead Deluxe $ Regular $ 2. Calculate the overhead cost per unit for each product. If required, round your answers to the nearest cent. Overhead Cost Deluxe $ per unit Regular $ per unit 3. What if the deluxe product used 16,000 hours (to produce 16,000 units) instead of 8,000 hours (total expected hours remain the same)? Calculate the effect on the profitability of this product line if all 16,000 units are sold. Profits would by $ decrease increase

Answer 1

1
Estimated overhead	1976000
Divide by Estimated activity	52000
Predetermined overhead rate	38	per hour
	Applied overhead
Deluxe	304000	=8000*38
Regular	1672000	=44000*38
2
	Overhead cost
Deluxe	19.00	per unit	=304000/16000
Regular	7.60	per unit	=1672000/220000
3
Overhead of $304000 will be applied additionally to Deluxe
Profits would decrease by $304000