The unit cost for Widget A, using direct labour hours to assign overhead is A. $
ID: 2540579 • Letter: T
Question
The unit cost for Widget A, using direct labour hours to assign overhead is
A. $42.56
B. $20.38
C. $14.50
D. $12.60
E. $10.00
Oxley Machining Company has identified the following overhead activities, cost, and activity drivers for the coming year Activity Capacity Activity Setting u Expected Cost $60,000 $45,000 Activity Driver Number of setups 300 Inspection hours 4,500 Machine hours Number of parts50,000 18,000 Grindin Receiving The company produces several different machine widgets used by other manufacturers. Information on separate batches for two of these widgets are: Direct materials Direct labour Units complete No. of setups Ins Widget A $850 $600 100 Widget B $950 $600 50 pection hours Machine hours Parts used 20 20 30 40 The company's normal activity is 20,000 direct labour hours. Each batch uses 50 hours of direct labour. Upon investigation, you discover that Receiving employs one worker, who spends 80% of her time on the receiving activity and 20% of her time on inspecting products. Her salary is $40,000. Inspecting has taken into account the worker's salary but not Receiving. In addition, Receiving also uses a forklift, at a cost of $8,000 per year for amortization and fuel. The forklift is used only in receiving.Explanation / Answer
Receiving Activity cost = $ 40,000 x 80% + $ 8,000
Receiving Activity cost = $40,000
Total Overhead = $ 60,000 + $ 45,000 + $ 90,000+ $ 40,000
Total Overhead = $ 235,000
Total No. of Direct Labour hours = 20,000 hours.
Overhead rate per direct labour hour = $ 235,000 / 20,000 = $ 11.75 per direct labour hour.
No. of direct labour hours used by Widget A = 1 Batch = 50 hours.
Total Overhead cost for Widget A = 50 hours x $ 11.75 per direct labour hour.
Total Overhead Cost for Widget A = $ 587.50
Widget A:
Direct Materials : $ 850.00
Direct Labour : $ 600.00
Total Overhead : $ 587.50
Total Cost $ 2,037.50
No. of Units = 100 Units.
Unit cost for Widget A = $ 2,037.50 / 100 units
Unit cost for Widget A is $ 20.375 or $ 20.38
Therefore, Option B is correct answer. The unit cost of Widget A, using direct labour hours to assign overhead is $ 20.38
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