Question

Chargeit Corporation This company manufactures two types of products. Each unit of each type receives an overhead charge. Currently, the company charges overheads using total forecast annual direct manufacturing labour hours using the total forecast manufacturing overheads for the year. The management accountant has recently suggested dividing the total overheads into two categories: machining overheads and general overheads. If overheads were to be charged using the proposed two categories, machining overheads would be charged in using machine hours per unit, and general overheads would charged using direct manufacturing labour hours per unit. Required Using the data below: i) Calculate the overhead charge per unit to each type of product using the TOTAL forecast overheads for the year. ii) Calculate the overhead charge per unit using each of the machining overheads and general overheads. Lay out your answer/calculations in a way that enhances clear communication Total for Type A Турев year Annual forecast production - units 10,000 20,000 Direct manufacturing labour hours per unit Machine hours per unit $6.40 million Forecast total manufacturing overheads for next year Comprising: Total machining cost overheads General manufacturing overheads $3.60 $2.80 million million

Answer 1

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Chargeit Corporation
Answer i
Calculation of Predetermined OH Rate	Type A	Type B	Total	Note
Number of units	10,000.00	20,000.00	30,000.00	A
Labor Hours per unit	2.00	4.00		B
Total Labor Hours	20,000.00	80,000.00	100,000.00	C=B*A
Forecast Overhead costs			6,400,000.00	D
Predetermined OH Rate			64.00	E=D/C
Answer ii
Calculation of General OH Rate per unit	Type A	Type B
Number of units	10,000.00	20,000.00	30,000.00	F
Labor Hours per unit	2.00	4.00		G
Total Labor Hours	20,000.00	80,000.00	100,000.00	H=F*G
Forecast Overhead costs			2,800,000.00	I
Predetermined General OH Rate			28.00	J=I/H
Calculation of machining OH Rate per unit	Type A	Type B
Number of units	10,000.00	20,000.00	30,000.00	K
Machine Hours per unit	8.00	8.00		L
Total Machine Hours	80,000.00	160,000.00	240,000.00	M=K*L
Forecast Overhead costs			3,600,000.00	N
Predetermined machining OH Rate			15.00	O=N/M