Question

Franklin Corporation estimated its overhead costs would be $22,300 per month except for January when it pays the $110,400 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $132,700 ($110,400 + $22,300). The company expected to use 7,200 direct labor hours per month except during July, August, and September when the company expected 9,900 hours of direct labor each month to build inventories for high demand that normally occurs during the Christmas season. The company's actual direct labor hours were the same as the estimated hours. The company made 3,600 units of product in each month except July, August, and September, in which it produced 4,950 units each month. Direct labor costs were $24.80 per unit, and direct materials costs were $11.60 per unit. Required a. Calculate a predetermined overhead rate based on direct labor hours. b. Determine the total allocated overhead cost for January, March, and August. c. Determine the cost per unit of product for January, March, and August. d. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $20.70 per unit. Complete this question by entering your answers in the tabs below. Req A Regs B to D Calculate a predetermined overhead rate based on direct labor hours. (Round your answer to 2 decimal places.) Predetermined overhead rate per labor hour < ReqA Reqs B to D >

Answer 1

SOLUTION

A. Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated direct labor hours

= 378,000 / 94,500 = $4 per direct labor hour

Estimated total manufacturing overhead cost = (Overhead cost per month * 12) + Insurance premium

= (22,300 * 12) + $110,400

= $267,600 + 110,400 = 378,000

Estimated direct labor hours = Direct labor hours for 9 months + Direct labor hours for 3 months

= (7,200 * 9) + (9,900 * 3)

= 64,800 + 29,700 = 94,500

B.

	January	March	August
Direct labor hours (a)	7,200	7,200	9,900
Predetermined overhead rate (b)	4	4	4
Total allocated overhead cost (a*b)	28,800	28,800	39,600

C.

	January	March	August
Direct material @$11.60	41,760	41,760	57,420
Direct labor @$24.80	89,280	89,280	122,760
Overhead	28,800	28,800	39,600
Total cost (a)	159,840	159,840	219,780
Number of units (b)	3,600	3,600	4,950
Cost per unit (a/b)	44.40	44.40	44.40

D.

	January	March	August
Cost per unit	44.40	44.40	44.40
Gross margin	20.70	20.70	20.70
Price	65.10	65.10	65.10