Question

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $289,600. During that time, the company produced 12,600 units of the M-008 and 2,200 units of the M-123. The direct costs of production were as follows. Direct materials Direct labor M-008 $100,800 1 00,800 M-123 $ 88,000 44,000 Total $188,800 144,800 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows. Cost Driver Number of machine-hours Number of production runs Number of inspections Total overhead Total 10,000 Activity Level M-008 M-123 1,000 9,000 30 20 Costs $105,100 90,000 94,500 $289,600 10 40 50 Required: a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Complete this question by entering your answers in the tabs below. Required A Required B How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.) M-008 M-123 Total overhead Total unit cost

Answer 1

(a)

	M-008	M-123
Total Overhead	$70810	$218790
Total Unit cost	$21.62	$159.45

Total Overhead

	M-008	M-123
cost on the basis of No of machine hours	($105100*1000/10000) =$10510	($105100*9000/10000) =$94590
cost on the basis of Production runs	($90000 * 10/40) =$22500	($90000 * 30/40) =$67500
Cost on the basis of inspections	($94500 * 20/50) =$37800	($94500 * 30/50) =$56700
Total	$70810	$218790

Total Unit cost :-

	M-008	M-123
Direct Materials	$100800	$88000
Direct Labor	$100800	$44000
Overhead	$70810	$218790
Total cost (A)	$272410	$350790
Unit  (B)	12600	2200
Cost per unit (A/B)	$21.62	$159.45

(b)

	M-008	M-123
Total Overhead	$201600	$88000
Total Unit cost	$21.62	$159.45

Total Overhead =

M-008 = $289600 * $100800/$144800 = $201600

M-123 = $289600 * $44000/$144800 = $88000

	M-008	M-123
Direct Materials	$100800	$88000
Direct Labor	$100800	$44000
Overhead	$201600	$88000
Total cost (A)	$403200	$220000
Unit  (B)	12600	2200
Cost per unit (A/B)	$32	$100