Orange, Inc. has identified the following cost drivers for its expected overhead

Question

Orange, Inc. has identified the following cost drivers for its expected overhead costs for the year Expected Cost Overhead Item Setup costs Ordering costs Maintenance Cost Driver $50,000 Number of setups 30,000 Number of orders 100,000 Machine hours 20,000 Kilowatt hours Expected Quantity 250 1,500 2,000 4,000 Total Overhead Total direct labor hours budgeted 2,000 hours The following actual data applies to one of the products completed during the year $200,000 Product X $5,000 Number of setups $3,000 INumber of orders 100 Machine hours 100 Kilowatt hours Direct materials Direct labor 50 out Direct labor hours 500 If Orange, Inc. uses machine hours to allocate overhead cost, the unit product cost of Product X will be: O $60.00. O $8000 O $90.00 O $110.00. O $130.00

Explanation / Answer

Particulars $ Total Overheads 200000 Expected Number of Machine Hours 2000 Overhead rate per Machine hour (200000/2000) 100 Actual number of Machine Hours 50 Actual Overheads (100 per hour*50 hours) 5000 Direct Materials 5000 Direct Labor 3000 Total Product Cost (5000+3000+3000) 13000 Total Number of Units 100 Unit Product Cost (13000/100) 130 Therefore, the right answer is option ( e ) $ 130.

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