Question

Michael & Co. expects overhead costs of $30,000 per month and direct production costs of $32 per unit. The estimated production activity for the current accounting period is as follows:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Units produced	10,700	5,500	5,500	8,300

The allocation rate for overhead costs based on units produced is:

Multiple Choice

• $1.00 per unit.

• $44.00 per unit.

• $12.00 per unit.

• $1.00 per unit.

Answer 1

Ans. Option 3rd $12 per unit

Working notes:

*Calculation of total estimated overhead cost for the year:

Total estimated overhead cost = Monthly overhead cost * Number of months in the year

= $30,000 * 12

= $360,000

*Calculation of total units produced in the year:

Quarter. Units produced

1. 10,700

2. 5,500

3. 5,500

4. 8,300

Total. 30,000

*Calculation of allocation rate:

Allocation rate = Total estimated overhead cost / Total units produced

= $360,000 / 30,000

= $12.00 per unit