Question

Use the following statement:

	Product A	Product B	Total
sales volume (units)	100	180	280
Revenue	$12,000	$72,000	$84,000
COGS:
direct materials	$2,400	$4,800	$7,200
direct labor	$4,800	$12,000	$16,800
MOH			$50,400
Gross margin			$9,600

Required:

(a) allocate the shared MOH ($50,400) among product A and product B, using direct labor dollars as the allocation base.
overhead rate=$  per DL$
MOH allocated to A=$
MOH allocated to B=$

(b) using the allocated costs from (a), compute the gross margin for product A and product B.
If you get a negative number, enter it with a minus sign, i.e., enter negative $1000 as -1000, not as ($1000)
gross margin for A=$
gross margin for B=$

(c) allocate the shared MOH ($50,400) among product A and product B, using the number of units as the allocation base.
overhead rate=$  per unit
MOH allocated to A=$
MOH allocated to B=$

(d) using the allocated costs from (c), compute the gross margin for product A and product B.
If you get a negative number, enter it with a minus sign, i.e., enter negative $1000 as -1000, not as ($1000)
gross margin for A=$
gross margin for B=$

Answer 1

a) overhead rate per DL$  = total overhead / total direct labour

= 50,400 / 16,800

= 3 per DL$

allocated to A = 4,800 x 3 = $14,400

allocated to B = 12,000 x 3 = $36,000

b) gross margin of A = sale - material - labor - MOH

= 12,000 - 2,400 - 4,800 -14,400

= -9,600

gross margin of B = sale - material - labor - MOH

= 72,000 - 4,800- 12,000 -36,000

= 19,200

c) overhead rate per unit = total overhead / total unit

= 50,400 / 280

= 180 per unit

allocated to A = 100 x 180 = 18,000

allocated to B = 180 x 180 = 32,400

d) gross margin of A = sale - material - labor - MOH

= 12,000 - 2,400 - 4,800 -18,000

= -13,200

gross margin of B = sale - material - labor - MOH

= 72,000 - 4,800- 12,000 -32,400

= 22,800