Seco, Inc.. produces two types of dothes dryers: deluxe and regular. Seco uses a

Question

Seco, Inc.. produces two types of dothes 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 Expected activity Actual activity (direct labor hours): $2,784,00o 58,000 Deluxe dryer 13,000 Regular dryer 45,000 Units produced: Deluxe dryer 26,000 Regular dryer 225,000 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 s Regular 3. what if the deluxe product used 26,000 hours (to produce 25.000 units) instead of 13,000 hours (total expected hours remain thesame Calculate the effect on the profitability of this product line if all 26,000 units are sold Profits would per unit per unit by Previous Next

Explanation / Answer

1 Computation of predetermined overhead rate: Predetermined overhead rate = Estimated overheads coat / Estimated Direct labor hours = $27,84,000 / 58,000 hours = $               48 per hour Computation of Applied overheads: Deluxe = Actual Direct labor hours X predetermined overheads rate = 13,000 hours X $48 = $   6,24,000 Regular = Actual Direct labor hours X predetermined overheads rate = 45,000 hours X $48 = $21,60,000 2 Computation of overhead cost per unit for each product: Deluxe = Applied overheads / Units produced = $6,24,000 / 26,000 units = $               24 per unit Regular = Applied overheads / Units produced = $21,60,000 / 2,25,000 units = $           9.60 per unit 3 Deluxe: Previous Direct labor hours = 13,000 hours New Direct Labor hours = 26,000 hours Difference = -13,000 hours Predetermined overhead rate = $               48 per hour Increase/ decrease in profit = $ -6,24,000 Profits would decrease by $6,24,000

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