Salem makes two products and expects to incur the following overhead costs next

Question

Salem makes two products and expects to incur the following overhead costs next year: Machining Setup Packaging Total Overhead Costs $70,000 $50,000 $30.000 $150,000 Salem expects the following next year: Machining hours Number of setups Units Direct Labor Direct Materials Prodi Prod 2 4,000 1,000 30 7,000 3,000 $70,000 $30,000 $40,000 $50,000 10 What is the PDO assuming a single plant-wide rate based on direct labor cost? b. a. Using traditional method, how much overhcad is assigned products 1? Product2? Using traditional method, what is the total cost of product 1? Product 2? d. c. If sales are $300,000 for prod 1 & S150,000 for product 2, what is the gross profit per unit using the single plant-wide rate? e. Use activity based costing to come up with ABC rates. f. Using ABC, how much overhead is assigned to product 1? Product 2? g. Using ABC, what is the total product cost of product 1? Product 2? h. If sales are $300,000 for prod 1 & $150,000 for prod 2, what is the gross profit per unit using ABC

Explanation / Answer

Req 1. PDO: Total Overheads 150000 Divide: Total direct labour cost 100000 Pre- Determined OH rate 150% of DLC Req 2. Product 1 Product 2 Direct Labour cost 70000 30000 Pre- determined OH rate 150% 150% Overheads allocated 105000 45000 Req 3. Product 1 Product 2 Direct Material 40000 50000 Direct Labour 70000 30000 Overheads allocated 105000 45000 Total Cost 215000 125000 Req 4. Product 1 Product 2 Sales revenue 300000 150000 Lless: Total cost 215000 125000 Gross Profit 85000 25000 Divide: Number of units 7000 3000 Gross Profit per unit 12.14 8.33 Req 5. Activity rate Activity    Activity Total Total Activity driver Cost Activities Rate machining MH 70000 5000 14 Setup Setups 50000 40 1250 Packaging Units 30000 10000 3 Req 6. Overheads assigned Activity    Rate Product 1 Product 2 Activity OH cost Activity OH cost machining 14 4000 56000 1000 14000 Setup 1250 30 37500 10 12500 Packaging 3 7000 21000 3000 9000 Total Overheads 114500 35500 Req 7. Product 1 Product 2 Direct Material 40000 50000 Direct Labour 70000 30000 Overheads allocated 114500 35500 Total Cost 224500 115500 Req 8. Product 1 Product 2 Sales revenue 300000 150000 Lless: Total cost 224500 115500 Gross Profit 75500 34500 Divide: Number of units 7000 3000 Gross Profit per unit 10.79 11.5

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