The following information applies to the questions displayed below.] For many ye

ID: 2497214 • Letter: T

Question

The following information applies to the questions displayed below.] For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of Its plant and at the same time that has become Increasingly popular. The LEC 90 is a more complex product, requiring 0.60 hours of direct labor time per unit to manufacture and extensive machining In the automated portion of the plant. The 40 requires only 0.20 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Introduced a second product called LEC 90 LEC Despite the growing popularity of the company's new LEC 90, profts have been declining steadily. Management is beginning to belleve that there may be a problem with the company's costing system. Direct material and direct labor costs per unit are as follows: Direct materials Direct labor (0.20 hours and 0.60 hours@$15.00 per hour) LEC 40 $26.00 s 300 LEC 90 $48.00 900 Management estimates that the company will incur $1,.040,000 in manufacturing overhead costs during the current year and 80,000 units of the LEC 40 and 40,000 units of the LEC 90 will be produced and sold. 2. value 2.50 points Required: 1-a. Compute the predetermined overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor-hours. (Round your answer to 2 decimal places.) Predetermined overhead rate per DLH

Explanation / Answer

Compute the predetermined overhead rate.

Predetermined overhead rate = Total manufacturing overhead/Number of direct labor hours

Total manufacturing overhead = 1,040,000

Direct Labor hours for LEC40:

Total labor hours = Number of L40 products * Labor hours required to produce

= 80,000 units * 0.20 = 16,000 hours.

Direct Labor hours for LEC90:

Total labor hours = Number of LEC90 products * Labor hours required to produce

= 40,000 units * 0.60 = 24,000 hours

Total labor hours = 16,000+24,000 = 40,000 hours.

Predetermined overhead rate = $1,040,000/40,000 = $26 Direct labor hour.

Compute the unit cost of each product.

Particulars

LEC40

LEC90

Direct Materials

Direct Labor

Manufacturing Overhead LEC40 - 0.20*26 LEC90-0.60*26

5.2

15.6

Total Cost

34.2

72.6