29) The management accountant at Morrison, Inc. provided the following estimated

Question

29) The management accountant at Morrison, Inc. provided the following estimated costs for producing 2,500 units of a specialty product manufactured by the firm: Direct Materials Direct Labor (I hour per unit) Unit-level support costs Batch level support costs Product-level support costs s 10,000 5,000 10,000 5,000 3,000 7,000 Facility-level support costs The company believes that direct labor hours are the most appropriate cost driver for assigning overhead costs to its product. Required: 1) Compute the predetermined overhead rate for this company 2) Compute the specialty product's total estimated cost per unit. 3) Why do firms assign overhead costs using a predetermined overhead rate instead of assigning actual costs?

Explanation / Answer

1) predetermined overhead rate Formula: Estimated manufacturing overhead/estimated direct labor hours direct labor hours required per unit is 1 hour hence 2,500 units will required 2500*1=2500 hrs total manufacturing overhead unit level support costs 10,000 batch level support costs 5,000 product level support costs 3,000 facility level support costs 7,000 total manufacturing overhead 25,000 overhead rate 25000/2500 $10 per hour 2) total estimated cost per unit Direct materials 10,000 direct labor 5,000 overhead cost 25,000 total cost 40,000 units produced 2,500 estimated cost per unit 16 3) since actual costs can be known at the end of the year or until incurred hence overhead rate is used for allocation purposes,decision making and to set the pricing

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