Marine, Inc., manufactures a product that is available in both a flexible and a
ID: 2415957 • Letter: M
Question
Marine, Inc., manufactures a product that is available in both a flexible and a rigid model. The company has made the rigid model for years; the flexible model was introduced several years ago to tap a new segment of the market. Since introduction of the flexible model, the company's profits have steadily declined, and management has rapidly. Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $714,000 in overhead costs would be incurred and the company would produce and sell 2,000 units of the flexible model and 10,000 units of the rigid model. The flexible model requires 3.0 hour(s) of direct labor time per unit, and the rigid model requires 1.50 hour(s). Direct materials and labor costs per unit are given below: Direct materials cost per unit Direct labor cost per unit Flexible Rigid $ 125 $ 80 $30 $ 15 Required: 1-a. Compute the predetermined overhead rate using direct labor-hours as the basis for allocating overhead costs to products. Predetermined overhead ate per DLH 1-b. Compute the unit product cost for one unit of each model. Unit product cost FlexibleExplanation / Answer
1. a)
Predtermined overhead rate = Total estimated overheads/Total estimated direct labor hours
= $714,000/(3.0 hours * 2,000 units) + (1.5 hours * 10,000 units)
= $714,000/21,000 DL hours
= $34 per direct labor hour
1. b)
Unit product cost under flexible model:
Direct materials per unit = $125
Add: Direct labor cost per unit = $30
Add: Manufacturing overhead per unit = $102 ($34*3.0)
Unit product cost = $257
Unit product cost under rigid model:
Direct materials per unit = $80
Add: Direct labor cost per unit = $15
Add: Manufacturing overhead per unit = $51 ($34*1.5)
Unit product cost = $146
2) Activity rate for each of the activity cost pools:
Purchase orders = $22,500/450
= $50 per PO
Rework requests = $12,500/250
= $50 per rework request
Product testing = $170,000/1,360
= $125 per test
Machine related = $509,000/5,090
= $100 per hour
3. a)
Total amount of overheads assgined tpo each model:
Flexible model:
PO = $22,500*100/450
= $5,000
Rework = $12,500*75/250
$3,750
Product testing = $170,000*650/1,360
= $81,250
Machine related = $509,000*1,100/5,090
= $110,000
Total manufacturing overheads assigned to flexible model = $200,000 ($5,000 + $3,750 + $81,250 + $110,000)
Rigid model:
Purchase order = $22,500*350/450
= $17,500
Rework = $12,500*175/250
= $8,750
Product testing = $170,000*710/1,360
= $88,750
Machine related = $509,000*3,990/5,090
= $399,000
Total manufacturing overheads assigned to rigid model = $ ($17,500 + $8,750 + $88,750 + $399,000)
= $514,000
3. b)
Unit product cost:
Flexible model:
Direct materials per unit = $125
Add: Direct labor cost per unit = $30
Add: Manufacturing overhead per unit = $100 ($200,000/2,000 units)
Total unit product cost under flexible model = $255
Rigid model:
Direct materials per unit = $80
Add: Direct labor cost per unit = $15
Add: Manufacturing overhead per unit = $51.4 ($514,000/10,000 units)
Total unit product cost under rigid model = $146.40
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