Question

Thornton Corporation estimated its overhead costs would be $23,800 per month except for January when it pays the $115,200 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $139,000 ($115,200 + $23,800). The company expected to use 7,800 direct labor hours per month except during July, August, and September when the company expected 10,000 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 3,900 units of product in each month except July, August, and September, in which it produced 5,000 units each month. Direct labor costs were $24.20 per unit, and direct materials costs were $10.50 per unit.


Required

1. Calculate a predetermined overhead rate based on direct labor hours.

2. Determine the total allocated overhead cost for January, March, and August.

3. Determine the cost per unit of product for January, March, and August.

4. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.10 per unit.

Answer 1

Saleetin' .. Estimated over head = $ 115200 162.3800 XP2) - 115200+ 285600 =$400 800 Estimated direct labeas hours = f1800x9H (10000x3) = 100 200 hairs . . overhead rate based on direct predetermined labor hours Yoosoo UD 200 c u pee direct labor hour.

(62 overhead cost for January, Total allocated March and August particulas jan March Aug Direct labos hours / 1800 overhead tate bu Allocated overhead 331200 Nos of writs producted 3900 overhead cost per unit 8 t / 1800 $u $31200 / 10000 $u & yoooo SOOD l 3900 e l 8 co The March of product for Sanuary cest per unit and August. pasticulas: Jan march Aug Direct material Direct labor . orer head Chit product cost |$10.50 $10.50 $10.50 $24:20 | $24 20 1824-20 $42.7 | $42.7 1342-7

Selling price per product a unit product cost of desired A gross margin per unit z$42.7 + $21:10 3 $ 63.8