Question

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $346,400. During that time, the company produced 14,900 units of the M-008 and 2,700 units of the M-123. The direct costs of production were as follows.

	M-008		M-123		Total
Direct materials	$	119,200	$	108,000	$	227,200
Direct labor		119,200		54,000		173,200

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.

			Activity Level
Cost Driver		Costs		M-008		M-123		Total
Number of machine-hours	$	170,400		1,000		9,000		10,000
Number of production runs		80,000		10		30		40
Number of inspections		96,000		30		20		50
Total overhead	$	346,400

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?

• Required A

How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

	M-008	M-123
Total overhead
Total unit cost

• Required B

How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

	M-008	M-123
Total overhead
Total unit cost

Answer 1

1) Calculate cost per unit

	M-008	M-123
Overhead allocated
Number of machine-hours	17040	153360
Number of production runs	20000	60000
Number of inspections	57600	38400
Total overhead	94640	251760
Direct material	119200	108000
Direct labor	119200	54000
Total Cost	333040	413760
Unit	14900	2700
Total Unit cost	22.35	153.24

2) Calculate cost per unit

	M-008	M-123
Total overhead	238400	108000
Direct material	119200	108000
Direct labor	119200	54000
Total Cost	476800	270000
Unit	14900	2700
Total Unit cost	32	100