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 $296,000. During that time, the company produced 13,500 units of the M-000 500 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows. Direct materials Direct labor M-808 $108,000 108,00 M-123 $80, 40,000 Total $ 188,000 148,000 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows. Cost Driver Number of machine-hours Number of production runs Number of inspections Total overhead Costs $135,500 70,000 90,500 $ 296,000 Activity Level M-808 M-123 8,000 2,eee 20 10 Total 10, eee 40 50 2e 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?

Answer 1

Required A :
Cost drivers	Overhead allocated
	M-008	M-123
Number of machine hours	108400	27100
Number of production runs	35000	35000
Number of inspections	18100	72400
Total overhead	161500	134500
	M-008	M-123
Direct materials	108000	80000
Direct labor	108000	40000
Total overhead	161500	134500
Total cost	377500	254500
(/) Units produced	13500	2000
Total unit cost	27.96	127.25
Required B :
	Overhead allocation
	M-008	M-123
Total overhead	216000	80000
	M-008	M-123
Direct materials	108000	80000
Direct labor	108000	40000
Total overhead	216000	80000
Total cost	432000	200000
(/) Units produced	13500	2000
Total unit cost	32.00	100.00