Pacifica Industrial Products Corporation makes two products, Product H and Produ
ID: 3144623 • Letter: P
Question
Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 33,000 units next year and Product L is expected to sell 6,600 units. A unit of either product requires 0.6 direct labor-hours.
The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product? (Round your answers to 2 decimal places.
Compute the total amount of overhead cost that would be applied to each product.
2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $1,009,800 assigned to Product H and $1,009,800 assigned to Product L. If this suggestion is followed, how much overhead cost per unit would be assigned to each product? (Round your answers to 2 decimal places.)
Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 33,000 units next year and Product L is expected to sell 6,600 units. A unit of either product requires 0.6 direct labor-hours.
The company's total manufacturing overhead for the year is expected to be $2,019,600.Explanation / Answer
1)-a
Direct Labor hours required for Product H (0.6 x 33,000) = 19,800hours
Direct Labor hours required for Product L (0.6 x 6600) = 3,960 hours
Total hours required 23,760 hours
Total Manufacturing overheads $2,019,600.
Mfg. Overhead cost per hour = $2,019,600./ 23,760 = 85 per hour
> Mfg. Overheads applied to Product H (85*19800) = $1,683,000
Therefore, Mfg. Overhead per unit for Product H = $1,683,000 / 33,000 = $51
> Mfg. Overheads applied to Product L (85 x 3,960) = $336,600
Therefore, Mfg. Overhead per unit for Product L = 336600 / 6600 = $51
1)-b
> Overhead cost per unit for Product H = $51
No. of Units of Product H expected to be sold = 33,000 units
Therefore, Mfg. overheads applied to Product H = 33,000 x 51 = $1,683,000
> Overhead cost per unit for Product L = $51
No. of Units of Product L expected to be sold = 6,600 units
Therefore, Mfg. overheads applied to Product L = 6,600 x 51 = $336,600
2)
According to activity based costing:
Mfg. Overheads assgned to Product H = $1,009,800
Mfg. Overheads assgned to Product L = $1,009,800
No. of Units of Product H expected to be sold = 33,000 units
No. of Units of Product L expected to be sold = 6,600 units
Mfg. Overhead per unit for Product H = $1,009,800 / 33,000 = $30.6
Mfg. Overhead per unit for Product L = $1,009,800 / 6,600 = $153
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