Question

Donovan & Parents produces soccer shorts and jerseys for youth leagues. Most of the production is done by machine. Data on operations and costs for March follow:

	Jerseys			Shorts			Total
Units produced		10,100			4,000			14,100
Machine-hours used		1,040			820			1,860
Direct labor-hours		200			110			310
Direct materials costs	$	12,300		$	7,400		$	19,700
Direct labor costs	$	4,000		$	2,200		$	6,200
Manufacturing overhead costs							$	22,081

Management asks the firm’s cost accountant to compute product costs. The accountant first assigns overhead costs to two pools: overhead related to direct materials and overhead related to machine-hours. The analysis of overhead accounts by the cost accountant follows:

Account	Amount			Related to:
Utilities	$	4,090		Machine-hours
Supplies		2,800		Materials
Machine depreciation and maintenance		8,878		Machine-hours
Purchasing and storing materials		2,913		Materials
Miscellaneous		3,400		Machine-hours

Required:

a. Compute the predetermined overhead rates assuming that Donovan uses machine-hours to allocate machine-related overhead costs and materials costs to allocate materials-related overhead costs. (Round "Machine-related overhead" rate to 2 decimal places and "Materials related overhead" rate as a whole percentage (i.e., 32).)

b. Compute the total costs of production and the cost per unit for each of the two products for March. (Do not round intermediate calculations. Round your "Cost per unit" to 2 decimal places.)

Answer 1

a) Predetermine overhead rate :

Overhead	Overhead cost		Activity rate
Overhead related to direct material	5713	Direct material cost	0.29 per material cost
Overhead related to machine hour	16368	Machine hour	8.8 per machine hour

b) Compute total cost and cost per unit :

	Jerseys	Shorts
Direct material	12300	7400
Direct labour	4000	2200
Overhead related to material	3567	2146
Overhead related to machine hour	9152	7216
TOtal product cost	29019	18962
Unit	10100	4000
Cost per unit	2.87	4.74