Question

Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 31,000 units next year and Product L is expected to sell 6,200 units. A unit of either product requires 0.7 direct labor-hours.

         The company's total manufacturing overhead for the year is expected to be $2,213,400.

Required:
1-a.		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.)

	Product H	Product L
Overhead cost per unit

1-b.	Compute the total amount of overhead cost that would be applied to each product.

	Product H	Product L	Total
Total overhead cost

1-c.

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 $1,106,700 assigned to Product H and $1,106,700 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.)

	Product H	Product L
Overhead cost per unit

Answer 1

		Product H	Product L	Total
	Units	31000	6200	37200
	Direct labor hour per unit	0.7	0.7
	Total direct labor hours	21700	4340	26040
	Manufacturing overheads	2213400
	Total direct labor hours	26040
	Manufacturing overheads per hour	85
		Product H	Product L
	Manufacturing overheads per hour	85	85
	Total direct labor hours	21700	4340
1 B	Total manufacturing overheads	1844500	368900
	Number of units	31000	6200
1a	Overhead cost per unit	59.50	59.50
	ABC	Product H	Product L
	Total manufacturing overheads	1106700	1106700
	Number of units	31000	6200
1 C	Overhead cost per unit	35.70	178.50