Question

Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $8 per direct labor hour. Loren is the department manager of the Makeup Department that produces Products – Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department that manufactures Product – Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows:

	Products
	C				GC				S
Direct materials	$	105.00			$	68.00			$	50.00
Direct labor		40.00				30.50				13.00
Overhead		26.00				24.00				12.00
	$	171.00			$	122.50			$	75.00
Machine hours		5				3				4
Number of cases (per year)		300				500				600

If Flawless changes its allocation basis to machine hours, what is the total product cost per case for Product GC?

Answer 1

Total product cost per case for Product GC	113.50
Workings:
	C	GC	S	Total
Number of cases (per year)	300	500	600
X Overhead per case	26	24	12
Total overhead	7800	12000	7200	27000
	C	GC	S	Total
Number of cases (per year)	300	500	600
X Machine hours	5	3	4
Total Machine hours	1500	1500	2400	5400
Overhead rate per Machine hour	5.00	=27000/5400
Product GC:
Direct materials	68.00
Direct labor	30.50
Overhead	15.00	=5.00*3
Total product cost per case for Product GC	113.50