Question

Donovan & Parents produces soccer shorts and jerseys for youth leagues. Most of the production is done by machine. Data on operations and costs for March follow:

	Jerseys			Shorts			Total
Units produced		10,100			5,100			15,200
Machine-hours used		1,000			830			1,830
Direct labor-hours		250			130			380
Direct materials costs	$	12,100		$	7,200		$	19,300
Direct labor costs	$	5,000		$	2,600		$	7,600
Manufacturing overhead costs							$	24,476

Management asks the firm’s cost accountant to compute product costs. The accountant first assigns overhead costs to two pools: overhead related to direct materials and overhead related to machine-hours. The analysis of overhead accounts by the cost accountant follows:

Account	Amount			Related to:
Utilities	$	4,030		Machine-hours
Supplies		2,890		Materials
Machine depreciation and maintenance		10,900		Machine-hours
Purchasing and storing materials		3,286		Materials
Miscellaneous		3,370		Machine-hours

Required:

a. Compute the predetermined overhead rates assuming that Donovan uses machine-hours to allocate machine-related overhead costs and materials costs to allocate materials-related overhead costs. (Round "Machine-related overhead" rate to 2 decimal places and "Materials related overhead" rate as a whole percentage (i.e., 32).)

b. Compute the total costs of production and the cost per unit for each of the two products for March. (Do not round intermediate calculations. Round your "Cost per unit" to 2 decimal places.)

Answer 1

a) Predetermine overhead rate related to machine hour = (4030+10900+3370)/1830 = 10 per machine hour

Predetermine overhead rate related to material cost = 6176/19300 = 32% of material cost

b) calculate total Cost of production and cost per unit

	Jerseys	Shorts
Direct material	12100	7200
Direct labor	5000	2600
Overhead on machine hour	10000	8300
Overhead on material used	3872	2304
Total Cost of production	30972	20404
Unit	10100	5100
Cost per unit	3.07	4.00