2 3 Crane makes two products, Simple and Complex. As their names suggest, Simple

Question

2 3 Crane makes two products, Simple and Complex. As their names suggest, Simple is the more basic product, and Complex comes with all the bells and whistles. The company has always allocated overhead costs to products based on machine hours. Last year, the company implemented an activity-based costing system, and managers determined the following activity pools and rates based on total overhead of $1,579,200 Rate Fabrication Setups Bonding $9.75 per machine hour $18 per batch $210,750 direct to Complex Only the Complex product requires bonding, so all the costs of bonding should be allocated to Complex. The following data relate to both products Units produced Direct labor hours Machine hours Batches 128,000 231,000 53,000 2,600 48,000 102,000 31,000 4,800 Using the traditional method of allocating overhead costs, , allocate overhead cost to the products . show that the overhead assigned to each product sums to the total company overhead. determine the overhead cost per unit for each product. (Round overhead rate and overhead per unit answers to 2 decimal places, e.g. 15.25.) Complex Total

Explanation / Answer

1)Overhead rate : Estimated overhead /estimated Machine hours

       = 1579200/(53000+31000)

       = 1579200/ 84000

      = $ 18.80 per MH

2)

Simple complex Total overhead Machine hours 53000 31000 Overhead rate 18.8 18.8 Total overhead 53000*18.8=996400 31000*18.8=582800 1579200 Total overhead 996400 582800 Number of units 128000 48000 overhead per unit 996400/128000=$ 7.78 12.14

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