Question

1. Huey Parker produces mathematical and financial calculators. Data related to the two products are presented below.

   LO 3

   1. $6 per machine hour

   	Mathematical	Financial
   Annual production in units	50,000	100,000
   Direct materials costs	$180,000	$360,000
   Direct manufacturing labour costs	$ 60,000	$150,000
   Direct manufacturing labour-hours	2,500	5,000
   Machine-hours	35,000	40,000
   Number of production runs	50	50
   Inspection hours	1,000	500

   Both products pass through Department 1 and Department 2. The departments’ combined manufacturing overhead costs are

   Costs	Total
   Machining	$450,000
   Setup	144,000
   Inspection	126,000

Required

1. Compute the manufacturing overhead cost for each product.

2. Compute the manufacturing cost for each product.

Answer 1

1.

	Mathematical	Financial
Machining [ 35,000*6; 40,000*6]	210000	240000
Setup [ 50*1440; 50*1440]	72000	72000
Inspection [ 1000*84; 500* 84]	84000	42000
Manufacturing overhead cost for each product	366000	354000

2.

	Mathematical	Financial
Direct materials costs	180,000	360,000
Direct manufacturing labour costs	60,000	150,000
Overheads	366000	354000
Manufacturing cost	606,000	864,000

Workings:

	Mathematical	Financial	Total
Machining	35,000	40,000	75,000
Number of production runs	50	50	100
Inspection hours	1000	500	1500

	Costs	Cost driver	Rate per cost driver [Costs / cost driver]
Machining	450,000	75000.00	6
Setup	144,000	100	1440
Inspection	126,000	1500	84