Vernon Corporation estimated its overhead costs would be $23,600 per month excep

ID: 2337400 • Letter: V

Question

Vernon Corporation estimated its overhead costs would be $23,600 per month except for January when it pays the $133,950 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $157,550 ($133,950 + $23,600). The company expected to use 7,200 direct labor hours per month except during July, August, and September when the company expected 9,300 hours of direct labor each month to build inventories for high demand that normally occurs during the Christmas season. The company’s actual direct labor hours were the same as the estimated hours. The company made 3,600 units of product in each month except July, August, and September, in which it produced 4,650 units each month. Direct labor costs were $23.50 per unit, and direct materials costs were $10.10 per unit.

Required

A. Calculate a predetermined overhead rate based on direct labor hours.

B. Determine the total allocated overhead cost for January, March, and August.

C. Determine the cost per unit of product for January, March, and August.

D. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.50 per unit.

Determine the total allocated overhead cost, the cost per unit of product and the selling price for the product for January, March, and August. Assume that the company desires to earn a gross margin of $21.50 per unit. (Do not round intermediate calculations. Round "Cost per unit" and "Price" to 2 decimal places.)

Total Allocated overhead cost- Jan, March, Aug

Cost per unit- Jan, March, Aug

Price- Jan, March, Aug

Explanation / Answer

(A) Total Overhead = (23600 * 12 month) + 133950 = 417150

Total Direct Labour Hrs = (7200 * 9 month) + (9300 * 3 month) = 92700 hours

Predetermined Overhead rate = 417150 / 92700 = $4.50

(B) Allocated O/H Cost :-

January = 7200 hrs * 4.50 = $32400

March = 7200 hrs * 4.50 = $32400

August = 9300 hrs * 4.50 = $41850

(C) Cost per unit :-

January

March

August

Direct Material

10.10

Direct Labour

23.50

Overhead

(32400/3600 units)

(41850/4650 units)

Cost per unit

42.60

(D) Selling Price = Cost pu + Margin pu

= 42.60 + 21.50 = $64.10