Marine, Inc., manufactures a product that is available in both a flexible and a

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 become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly.

    Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $569,000 in overhead costs would be incurred and the company would produce and sell 5,000 units of the flexible model and 40,000 units of the rigid model. The flexible model requires 1.6 hours of direct labor time per unit, and the rigid model requires 0.8 hours. Direct materials and labor costs per unit are given below:

  
Required:

Compute the unit product cost for one unit of each model. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Determine the total amount of overhead that would be assigned to each model for the year. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  

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 become concerned about the accuracy of its costing system. Sales of the flexible model have been increasing rapidly.

Explanation / Answer

1. A/

TOTAL EASTIMETED OVERHEAD = $569000

TOTAL EASTIMETED DIRECT LABOUR HOUR

FOR RIGID (4000 * 0.8) = 3200 HOURS

FOR FLEXIBLE (5000 * 1.6) = 8000 HOURS

PREDETERMINED OVERHEAD RATE = EASTIMETED OVERHEAD / EASTIMETED DIRECT LABOUR HOUR

   = $569000 / (3200 + 8000)

   = $50.80 PER HOUR

1.B/

2./

3.A/

FLEXIBLE

REGID

3.B/

FLEXIBLE $ RIGID $ DIRECT MATERIAL 150 112 DIRECT LABOUR 16 8 OVERHEAD FLEXIBLE (1.6 * $50.80) 81.28 RIGID (0.8 * $50.80) 40.64 UNIT PRODUCT COST 247.28 160.64

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