Question

Marigold is an electronics components manufacturer. Information about the company’s two products follows:

		AM-2		FM-9
Units produced		25,000		5,000
Direct labor hours required for production		12,500		15,000
Units per batch		5,000		500
Shipping weight per unit		0.50	lbs.	10	lbs.

The company incurs $880,000 in overhead per year and has traditionally applied overhead on the basis of direct labor hours.

(a)

(i)	How much overhead will be allocated to each product using the traditional direct labor hours allocation base? (Round per unit rates to 2 decimal places, e.g. 3.54 and final answers to 0 decimal places, e.g. 45,286.)

		AM-2	FM-9
Overhead allocated to each product

(ii)	What overhead cost per unit will be allocated to each product? (Round answers to 2 decimal places, e.g. 15.25.)

		AM-2	FM-9
Overhead cost per unit

Answer 1

a)					AM-2	FM-9
i)	overhead cost allocated to each product				400000	480000
	total overhead						880,000
	total direct labor hrs						27500
	overhead rate						32
	overhead cost allocated =			overhead rate * direct labor hours of each
ii)					AM-2	FM-9
	overhead cost per unit				16.00	96.00
	overhead cost per unit = overhead allocated/units produced