green & red manufactures two products, Product 2 and Product 8. Product 8 is of
ID: 2397837 • Letter: G
Question
green & red manufactures two products, Product 2 and Product 8. Product 8 is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product 2. Product 8 is the more complex of the two products, requiring two hours of direct labour time per unit to manufacture compared to one hour of direct labour time for Product 2. Product 8 is produced on an automated production line.
Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $450,000 in manufacturing overhead costs and produce 7,500 units of Product 8 and 30,000 units of Product 2 during the current year. Unit costs for materials and direct labour are:
Explanation / Answer
A Product 2 Product 8 Total Direct Labor Hours PU 1 2 Units to be Manufactured 30000 7500 Total Direct Labor Hours 30000 15000 45000 Overhead Cost 450000 Total Direct Labor Hours 45000 Overhead Rate Per DLH 10.00 Unit Product Costs: Product 2 Product 8 Direct Material 12.00 25.00 Direct Labor 10.00 20.00 Overhead Cost 10.00 20.00 (Overhead Rate*DLH PU) Total Unit Product Costs 32.00 65.00 A B A/B B Activity Costs Pools Estimated OH Product 2 Product 8 Total Activity Rate Machine Setup 180000 600 1200 1800 100.00 PO issued 38382 500 100 600 63.97 MH Required 92650 6800 10200 17000 5.45 Maintainance requests 138968 693 907 1600 86.86 450000 Allocation of Overhead Costs to Products: Activity Costs Pools Product 2 Product 8 Total Machine Setup 60000 120000 180000 (Activity Rate * Used by Product) PO issued 31985 6397 38382 (Activity Rate * Used by Product) MH Required 37060 55590 92650 (Activity Rate * Used by Product) Maintainance requests 60191 78777 138968 (Activity Rate * Used by Product) Overhead Costs 189236 260764 450000 Units to be Manufactured 30000 7500 Overhead Cost PU 6.31 34.77 Unit Product Costs: Product 2 Product 8 Direct Material 12.00 25.00 Direct Labor 10.00 20.00 Overhead Cost 6.31 34.77 Total Unit Product Costs 28.31 79.77
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