Question

Escuha Company produces two type of calculators: scientific and business. Both products pass through two producing departments. The business calculator is by far the most popular. The following data have been gathered for these two products:

	Product-Related Data
	Scientific	Business
Units produced per year	74,000	740,000
Prime costs	$258,000	$2,580,000
Direct labor hours	96,200	962,000
Machine hours	51,200	512,000
Production runs	100	150
Inspection hours	2,000	3,000
Maintenance hours	2,250	9,000

	Department Data
	Department 1	Department 2
Direct labor hours:
Scientific calculator	74,100	22,100
Business calculator	134,680	827,320
Total	208,780	849,420
Machine hours:
Scientific calculator	26,900	24,300
Business calculator	435,780	76,220
Total	462,680	100,520
Overhead costs:
Setup costs	$223,500	$223,500
Inspection costs	165,000	165,000
Power	239,000	144,000
Maintenance	190,000	271,250
Total	$817,500	$803,750

Required:

1. Compute the overhead cost per unit for each product using a plantwide, unit-based rate using direct labor hours. Round your calculations and answers to the nearest cent.

Plantwide rate	$ 1.53 per direct labor hour
Overhead cost per unit:
Scientific	$ 1.99 per unit
Business	$ 1.99 per unit

2. Compute the overhead cost per unit for each product using departmental rates. In calculating departmental rates, use machine hours for Department 1 and direct labor hours for Department 2. Round departmental rates and the overhead cost per unit to the nearest cent if rounding is required.

Departmental rates:
Department 1	$ 1.77 per machine hour
Department 2	$ 0.95 per direct labor hour
Overhead cost per unit:
Scientific	$ per unit
Business	$ per unit

Repeat using direct labor hours for Department 1 and machine hours for Department 2. Round departmental rates and the overhead cost per unit to the nearest cent if rounding is required.

Departmental rates:
Department 1	$ per direct labor hour
Department 2	$ per machine hour
Overhead cost per unit:
Scientific	$ per unit
Business	$ per unit

3. Compute the overhead cost per unit for each product using activity-based costing. Round your calculations and answers to the nearest cent.

	Overhead Cost
Scientific	$ per unit
Business	$ per unit

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer 2 Part 1) 3 Plantwide overhead rate 4 = total overheads /total direct labour hours 5 = (817500+803750)/(208780+849420) 6 = $ 1.53 Overhead cost per unit Scientific Bussiness 10 Total overheads assigned 147386.3636 1473863.636 11 No. of unit produced 74000 740000 1.99 1.99 13 14 Plant Wide Rate 1.53 Per Direct Labour Hour 15 Overhead cost per unit 16 Scientific 1.99 Per Unit 17 Bussiness 1.99 Per Unit 12 10 19 Part 2) 20 Department rate of Department 1 using machine hours 21 = overheads / machine hours of department 1 22 = 817500/462680 23 = $ 1.77 24

-5 Department rate of Department 2 using direct Labour 6 = overheads / direct labour hours -7 = 803750/849420 8 = $0.95 Overhead cost per unit Scientific Bussiness 2 Department 1 Overheads allocated 47529.07 3 Department 2 overheads allocated 20911.77 E4 Total overheads allocated 68441 5 No. of units 74000 6 Overhead cost per unit 0.92 769970.93 782838.23 1552809 740000 2.10 1.77 0.95 9 Department Rates 0 Department 1 21 Department 2 -2 Overhead cost per unit -3 Scientific 14 Bussiness 0.92 2.10

46 b) 47 Department rate of Department 1 using Direct Labour Hours 48 = overheads / Direct Labour hours of department 1 49 = 817500/208780 50 = $ 3.92 51 52 Department rate of Department 2 using Machine hours 53 = overheads / Machine hours 54 = 803750/100520 55 - $ 8.00 57 527353.67 609449.11 1136803 740000 1.54 Overhead cost per unit 58 Scientific Bussiness 59 Department 1 Overheads allocated 290146.33 60 Department 2 overheads allocated 61 Total overheads allocated 484447 62 No. of units 74000 63 Overhead cost per unit 6.55 64 Department Rates 65 Department 1 3.92 66 Department 2 8.00 67 Overhead cost per unit 68 Scientific 69 Bussiness 20

Part 3) Cost Pool Set up cost Inspection Costs Power Maintenance Total overheads Activity 447000 330000 383000 461250 Calculation of overhead cost per unit Scientific Overheads Rate Per Activity No. of activity allocated 250 1788 100 178800 5000 66 2000 132000 563200 0.68 51200 34818 11250 41 2250 92250 437868 74000 5.92 Bussiness Overheads No. of activity allocated 150 268200 3000 198000 512000 348182 9000 369000 1183382 740000 1.60 No. of Units Overhead Cost Per Unit Thus the final answer is Scientific 5.92 1.60 Bussiness