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		9,500			5,400			14,900
Machine-hours used		980			770			1,750
Direct labor-hours		210			140			350
Direct materials costs	$	11,600		$	8,700		$	20,300
Direct labor costs	$	4,200		$	2,800		$	7,000
Manufacturing overhead costs							$	22,274

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	$	3,960		Machine-hours
Supplies		2,740		Materials
Machine depreciation and maintenance		8,215		Machine-hours
Purchasing and storing materials		3,959		Materials
Miscellaneous		3,400		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) Predetermine overhead rate :

Overhead	Estimated cost	Estimated activity	Activity rate
Machine related	15575	1750	8.90 per hour
Material related	6699	20300	33% of material

b) Total cost of production and cost per unit

	Jerseys	Shorts
Direct material	11600	8700
Direct labor	4200	2800
Overhead related to machine hour	8722	6853
Overhead related to material	3828	2871
Total Cost	28350	21224
Unit	9500	5400
Unit cost	2.98	3.93