Question

Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product His expected to sell 45,000 units next year and Product Lis expected to sell 9,000 units. A unit of either product requires 0.2 direct labor-hours. The company's total manufacturing overhead for the year is expected to be $918,000. Required: 1-a. The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product? (Round your answers to 2 decimal places.) Product H Product L Overhead cost per unit 1-b. Compute the total amount of overhead cost that would be applied to each product. Product H Product L Total Total overhead cost 2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $459,000 assigned to Product H and $459,000 assigned to Product L. If this suggestion is followed, how much overhead cost per unit would be assigned to each product? (Round your answers to 2 decimal places.) Product H Product L Overhead cost per unit

Answer 1

1a) Estimated labor hour = (45000+9000)*.20 = 10800 Hour

Overhead cost per hour = 918000/10800 = 85 per hour

	Product H	Product L
Overhead cost per unit	85*.20 = 17	17

1b) Total overhead cost

	Product H	Product L	Total
Total overhead cost	45000*.2*85 = 765000	9000*.20*85 = 153000	918000

2) Overhead cost per unit

	Product H	Product L
Overhead cost per unit	459000/45000 = 10.20	459000/9000 = 51