Question

Globe Company manufactures product Z97, which incurs costs of $175 for direct materials and $140 for...

Globe Company manufactures product Z97, which incurs costs of $175 for direct materials and $140 for direct labour per unit. The company estimated its production overhead and direct labour hours for the month as follows:

Department A

Department B

Department C

Overhead costs

$95,000

$127,000

$83,000

Direct labour hours

4,500

12,000

5,500

Each unit of product Z97 is produced using:

  • 15 labour hours in department A
  • 10 labour hours in department B, and
  • 9 labour hours in department C

Calculate the cost of one unit of product Z97 using a company-wide overhead rate assuming the allocation base is direct labour hours.

Business   Accounting   
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Answer #1

Cost per unit can be rounded off to nearest whole number and in that case Cost will be $786

Calculation of Companywide overhead rate Total Overhead $ 305,000 (95000+127000+83000) Total Labour Hours 22,000 Hrs (4500+12000+5500) Overhead rate per Hour 13.86 Per Hour (rounded up to 2 decimals $ Calculation of Cost per unit Direct Material $ 175.00 Direct Labour $ 140.00 Overhead Cost (15+10+9) *13.86 $ 471.24 Cost per Unit $ 786.24

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