Question

Technical Measurement Company manufactures precision-measuring devices used by industrial companies in various capacities. The devices are produced in two stages: Assembly and Testing. The company has no beginning inventories because all units produced last year were sold by the end of the year. At the beginning of the year, the company has an order of 8,000 units. The company's predetermined overhead rate is based on materials used in assembly and direct labor hours in testing. Information concerning the predetermined overhead rates appears below: Direct labor is paid $20 per hour.

	Assembly	Testing
Budgeted overhead	$1,000,000	$500,000
Budgeted material use	2,000,000	50,000
Budgeted direct labor hours	200,000	100,000
Budgeted direct labor cost	3,000,000	1,500,000
	Assembly	Testing
Materials requisitioned	$2,200,000	$48,000
Direct labor cost	3,100,100	1,575,000
Actual overhead cost	1,200,000	475,000

Required:

1. Compute the predetermined overhead rate for each department.

2. Calculate the total and per unit cost of producing 8,000 units.

Answer 1

Requirement 1
Predetermined overhead rate
Assembly Department:
Budgeted Overhead	10,00,000
Budgeted Material Use	20,00,000
Overhead Rate (1,000,000/2,000,000)	0.50	per $ dollar of Material use
Testing Department:
Budgeted Overhead	5,00,000
Direct labour Hours	1,00,000
Overhead Rate (500,000/100,000)	5.00	per Hour

	Assembly	Testing	Total
Materials requisitioned	22,00,000	48,000	22,48,000
Direct labor cost	31,00,100	15,75,000	46,75,100
Overhead	11,00,000	3,93,750	14,93,750
	(2,200,000X0.50)	(1,575,000/20*5)
Total Cost	64,00,100	20,16,750	84,16,850
Number of Units produced			8,000
Unit cost			1,052.11