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			5,600			15,700
Machine-hours used		970			790			1,760
Direct labor-hours		200			120			320
Direct materials costs	$	11,500		$	7,100		$	18,600
Direct labor costs	$	4,000		$	2,400		$	6,400
Manufacturing overhead costs							$	21,918

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	$	3,930		Machine-hours
Supplies		2,720		Materials
Machine depreciation and maintenance		9,526		Machine-hours
Purchasing and storing materials		2,302		Materials
Miscellaneous		3,440		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. 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.

Predetermine overhead rate for machine hour = (3930+9526+3440)/1760 = 9.60 per machine hour

Predetermine overhead rate for material = (2720+2302)*100/18600 = 27% of material

b. Compute the total costs of production and the cost per unit for each of the two products for March.

	Jersey	Shorts
Direct material	11500	7100
Direct labour	4000	2400
Overhead - Machine hour	970*9.6 = 9312	790*9.6 = 7584
Overhead-Material	11500*27% = 3105	7100*27% = 1917
Total product cost	27917	19001
Unit	10100	5600
Unit Cost	2.76	3.39