Question

Consider the following data for two products of Gitano Manufacturing. (Loss amounts should be indicated with a minus sign. Round your Intermediate calculations and "OH rate and cost per unlt" answers to 2 decimal places.) Product A Number of units produced 12,500 units Direct labor cost (@ $24 per DLH) 0.20 DLH per unit Direct materials cost $ 1.50 per unit Product B 1,400 units 0.23 DLH per unit $ 2.30 per unit Mat ne serctivit Machine setup Materials handling Quality control inspections Overhead costs $151,794 61,000 60,940 $273,734 Required: 1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line. Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Product A Product B Product A Product B

Answer 1

1.

	Product A	Product B
Direct material	12500*1.5 = 18750	1400*2.3 = 3220
Direct Labour	12500*0.2*24 = 60000	1400*0.23*24 = 7728
Overheads:
Set up	151794*2500/2822 = 134473	151794*322/2822 = 17321
Material Handling	61000*2500/2822 = 54040	61000*322/2822 = 6960
Quality Control Inspections	60940*2500/2822 = 53987	60940*322/2822 = 6953
TOTAL COST	321250	42182
COST PER UNIT	321250/12500 = 25.7	42182/1400 = 30.13

Labour hours: Product A: 12500*0.2 = 2500; B: 1400*0.23 = 322

2.

	A	B
Market price per unit	31.94	63
Cost per unit	25.7	30.13
Profit per unit	6.24	32.87

3.

Overheads:

	Basis of Allocation	Product A	Product B
Set up	No of set ups (8:14)	151794*8/22 = 55198	151794*14/22 = 96596
Material Handling	No of parts reqd. (10*12500 : 9*1400) or (1250 ; 126)	61000* 1250/1376 = 55414	61000*126/1376 = 5586
Quality Control Inspections	No of Hours (52:225)	60940*52/277 = 11440	60940*225/277 = 49500
TOTAL		122052	151682

	A	B
Direct Material per unit	1.5	2.3
Direct labour per unit	24*0.2 = 4.8	24*0.23 = 5.52
Overhead per unit	122052/12500 = 9.76	151682/1400 = 108.34
Total Cost per unit	16.03	116.46

4.

	A	B
Market price per unit	31.94	63.00
Cost per unit	16.03	116.46
Profit/(Loss)	15.91	(53.46)

(please comment in case of any query regarding the solution)