Question

Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March follow:

	Basic			Dominator			Total
Units produced		1,320			320			1,640
Machine-hours		3,700			2,800			6,500
Direct labor-hours		3,100			2,200			5,300
Direct materials costs	$	16,000		$	4,050		$	20,050
Direct labor costs		63,500			51,500			115,000
Manufacturing overhead costs								199,085
Total costs							$	334,135

Tiger Furnishings’s CFO believes that a two-stage cost allocation system would give managers better cost information. She asks the company’s cost accountant to analyze the accounts and assign overhead costs to two pools: overhead related to direct labor cost and overhead related to machine-hours.

The analysis of overhead accounts by the cost accountant follows:

Manufacturing Overhead	Overhead Estimate		Cost Pool Assignment
Utilities	$	1,500	Machine-hour related
Supplies		4,200	Direct labor cost related
Training		8,400	Direct labor cost related
Supervision		23,800	Direct labor cost related
Machine depreciation		26,000	Machine-hour related
Plant depreciation		24,500	Machine-hour related
Miscellaneous		110,685	Direct labor cost related

Required:

b. Compute the product costs per unit assuming that Tiger Furnishings uses direct labor costs and machine-hours to allocate overhead to the products. (Do not round intermediate calculations.)

Basic Dominator Total Product Costing Direct material Direct labor Overhead Machine-related Labor-related Total overhead Total cost Units produced Unit cost $ $ 0 0 $ $ 0 0 $ $ 0

Answer 1

	Basic	Dominator	Total
Product Costing:
Direct material                                                          (a)	$16,000.00	$4,050.00	$20,050.00
Direct labor                                                                (b)	$63,500.00	$51,500.00	$115,000.00
Overhead
Machine related       [Refer working note 3]             (c)	$29,600.00	$22,400.00	$52,000.00
Labor related            [Refer working note 4]            (d)	$81,216.50	$65,868.50	$147,085.00
Total overhead                                                          (e = c + d)	$110,816.50	$88,268.50	$199,085.00
Total cost                                                                         (f = a + b + e)	$190,316.50	$143,818.50	$334,135.00
Units produced                                                                 (g)	1320	320
Unit cost                                                                           (f / g)	$144.18	$449.43

.

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Working note 1 - Computation of predetermined overhead rate assuming the company uses machine hours to allocate overhead costs
Manufacturing Overhead	Cost Pool Assignment	Overhead Estimate
Utilities	Machine-hour related	$1,500
Machine depreciation	Machine-hour related	$26,000
Plant depreciation	Machine-hour related	$24,500
Total machine-hour related overhead                          (a)		$52,000
Total machine hours                                                        (b)		$6,500
Predetermined overhead rate per machine hour           (a / b)		$8.00
			Working note 2 - Computation of predetermined overhead rate assuming the company uses direct labor costs to allocate overhead costs
Manufacturing Overhead	Cost Pool Assignment	Overhead Estimate
Supplies	Direct labor cost related	$4,200
Training	Direct labor cost related	$8,400
Supervision	Direct labor cost related	$23,800
Miscellaneous	Direct labor cost related	$110,685
Total direct labor cost related overhead                                   (a)		$147,085
Total direct labor cost                                                                   (b)		$115,000
predetermined overhead rate as a % of direct labor cost           (a / b)		127.90%

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Working note 3 - Allocation of Machine-hour related overhead to each product
	Basic	Dominator	Total
Machine-hours                                                                                                           (a)	3,700	2,800	6,500
Predetermined overhead rate                                    [Refer working note 1]              (b)	$8	$8	$8
Amount of Machine-hour related overhead allocated to each product                  (a x b)	$29,600	$22,400	$52,000
				Working note 4 - Allocation of direct labor cost related overhead to each product
	Basic	Dominator	Total
Direct labor cost                                                                                                        (a)	63,500	51,500	115,000
Predetermined overhead rate                                    [Refer working note 2]              (b)	127.90%	127.90%	127.90%
Amount of direct labor cost related overhead allocated to each product             (a x b)	$81,216.50	$65,868.50	$147,085.00