Smythe Co. makes furniture. The following data are taken from its production pla

Question

Smythe Co. makes furniture. The following data are taken from its production plans for the year. Direct labor costs Hazardous waste disposal costs $5,700,000 625,000 Chairs Expected production Direct labor hours required Hazardous waste disposed Tables 11,000 units 15,200 DLH 219,000 units 258,000 DLH 300 pounds 200 pounds Required etermine the hazardous waste disposal cost per unit single plantwide overhead rate based on direct labor hours. and for tables if costs are ass using a Activity Driver OH S per direct labor hour Total Overhead Cost Units Produced OH Cost per unit Product Chairs Tables Determine hazardous waste disposal costs per unit for chairs and for tables if costs are assigned based on the number of pounds disposed of. Activity Driver Units Produced OH Cost per unit Product OH S per poundTotal Overhead Cost Chairs Tables 3. Which method is better for assigning costs to each product? O Assignment based on direct labor hours O Assignment based on the number of pounds

Explanation / Answer

1 Cost are assigned using a single plantwide overhaed rate based on direct labor hours: Pre-determined overhead rate: = Total overheads / Total direct labor hours = $6,25,000 / 2,73,200 DLH = $            2.29 per hour Total direct labor hours = 2,58,000 + 15,200 =        2,73,200 (a) (b) (c) (d) (e) Product Activity Driver OH $ per direct labor hour Total overhead cost Units produced OH cost per unit (a) X (b) (c) / (d) Chairs 2,58,000 $            2.29 5,90,226.94 2,19,000 $       2.70 Table      15,200 $            2.29      34,773.06      11,000 $       3.16 2 Cost are assigned based on number of pounds disposed off: Pre-determined overhead rate: = Total overheads / Total number of pounds disposed off = $6,25,000 / 2,73,200 DLH = $          1,250 per pound Total number of pounds disposed off = 300 + 200 = 500 pounds (a) (b) (c) (d) (e) Product Activity Driver OH $ per direct labor hour Total overhead cost Units produced OH cost per unit (a) X (b) (c) / (d) Chairs 300 $          1,250 $    3,75,000 2,19,000 $       1.71 Table 200 $          1,250 $    2,50,000      11,000 $    22.73 3 Assignmet based on Direct labour hours is best over the other method as it is more comparable.

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