Smelly Perfume Company manufactures and distributes several different products.

Question

Smelly Perfume Company manufactures and distributes several different products. They currently use a plant-wide allocation method for allocating overhead at a rate of $7 per direct labor hour. Cindy is the department manager of Department C which produces Products J and P. Diane is the department manager of Department D which manufactures Product X. The product costs (per case of 24 bottles) and other information are as follows: J P X Direct materials $100.00 $ 72.00 $48.00 Direct labor 42.00 31.50 12.00 Overhead 28.00 21.00 14.00 $170.00 $124.50 $74.00 Machine hours 4 2 3 Number of cases (per year) 300 500 600 If Smelly changes its allocation basis to machine hours, what is the total product cost per case for Product P? a. $163.50 b. $144.00 c. $138.15 d. $117.15

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Total Overhead = 28*300 + 21*500 + 14*600 = 27300

Total Machine Hours = 4*300 + 2*500 + 3*600 = 4000

Overhead Rate Per Machine Hour = Total Overhead/Total Machine Hours = 27300/4000 = 6.825

Product Cost for P = Direct Material + Direct Labor + Overhead Rate Per Machine Hour*Estimated Machine Hours for P = 72 + 31.50 + 6.825*2 = 117.15

Option D (117.15) is the correct answer.

Part B:

Department C = 16200/(1200 + 1500) = 6 per direct labor hour

Department D = 11100/(3*600) = 6.167 per machine hour

Product Cost for P = 72 + 31.50 + 6*3 = 121.50

Option C (121.50) is the correct answer.

Thanks.

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