Question

Gibson Manufacturing Company produced 2,900 units of inventory in January year 2. It expects to produce an additional 9,800 units during the remaining 11 months of the year. In other words, total production for year 2 is estimated to be 12,700 units. Direct materials and direct labor costs are $72 and $55 per unit, respectively. Gibson expects to incur the following manufacturing overhead costs during the year 2 accounting period.

Production supplies $ 5,000

Supervisor salary 191,000

Depreciation on equipment 124,000

Utilities 29,000

Rental fee on manufacturing facilities 333,625

A. Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units.

B. Determine the cost of the 2,900 units of product made in January.

Answer 1

Answer:
A)
Predetermined overhead rate      =     Manufacturing overhead costs / Total Units      =   ($ 5,000 + $ 191,000 + $ 124,000 + $ 29,000 + $ 333,625 ) / ( 2,900 + 9,800 ) Units      =     $ 682,625 / 12,700 Units      =      $ 53.75	$ 53.75
B)
Particulars	January
Indirect overhead cost (2,900 units x $ 53.75)	$ 155,875
Direct material (2,900 units x $ 72)	$ 208,800
Direct labor (2,900 units x $ 55)	$ 159,500
Total	$ 524,175