Awesome Wood Products manufactures two types of wooden bookends: plain and hand-

Question

Awesome Wood Products manufactures two types of wooden bookends: plain and hand-carved. The following information about the production process is available

Plain

Number produced 120,000

Machine hours95,000

Inspection hours7,000

Revenues$4,800,000$

Direct costs$3,800,000$

Hand-Carved

Number produced75,000

Machine hours 25,000

Inspection hours35,000

Revenues4,400,000

Direct costs 3,100,000

Total factory overhead is $1,200,000. Of this overhead, $500,000 is related to utilities and the remainder is related to quality control.

Determine the total overhead cost assigned to each type of bookend if overhead is assigned using allocation bases appropriate to the overheadcosts. Calculate the gross profit per unit of each product.

Explanation / Answer

Allocation of overhead :

Overhead Overhead Allocation base Expected activity per hour Plain Hand carved Utilities 500000 machine hours 120000 4.16 395833 104167 Quality control 700000 Inspection hour 42000 16.67 116667 583333 Total overhead cost 512500 687500 Direct cost 3800000 3100000 Total cost 4312500 3787500 Revenue 4800000 4400000 Gross profit 487500 612500 Number produced 120000 75000 Gross profit per unit 4.0625 8.167

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