Campbell Corporation estimated its overhead costs would be
$23,800 per month except for January when it pays the $127,560
annual insurance premium on the manufacturing facility.
Accordingly, the January overhead costs were expected to be
$151,360 ($127,560 + $23,800). The company expected to use 7,100
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
3,550 units of product in each month except July, August, and
September, in which it produced 5,000 units each month. Direct
labor costs were $23.30 per unit, and direct materials costs were
$11.80 per unit.
Required
Calculate a predetermined overhead rate based on direct labor hours.
Determine the total allocated overhead cost for January, March, and August.
Determine the cost per unit of product for January, March, and August.
Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.90 per unit.
Predetermined overhead rate | Total manufacturing costs/Direct labor hours | |||||
Total manufacturing costs | $413,160 | (23800*12)+127560 | ||||
Direct labor hours | 93,900 | (7100*9)+(10000*3) | ||||
Predetermined overhead rate | $4.40 | per direct labor hour | ||||
Calculation of total overhead cost for January, March and August | ||||||
January | March | August | ||||
Direct labor hours | 10000 | 10000 | 7100 | |||
Predetermined overhead rate | $4.40 | $4.40 | $4.40 | |||
Total overhead cost | $44,000.00 | $44,000.00 | $31,240.00 | |||
Calculation of cost per unit of product | ||||||
January | March | August | ||||
Direct materials | $11.80 | $11.80 | $11.80 | |||
Direct labor | $23.30 | $23.30 | $23.30 | |||
Overhead cost per unit | $12.39 | $12.39 | $6.25 | |||
44000/3550 | 44000/3550 | 31240/5000 | ||||
Cost per unit of product | $47.49 | $47.49 | $41.35 | |||
Calculation of selling price for product | ||||||
January | March | August | ||||
Cost per unit of product | $47.49 | $47.49 | $41.35 | |||
Gross margin | $21.90 | $21.90 | $21.90 | |||
Selling price | $69.39 | $69.39 | $63.25 | |||
Campbell Corporation estimated its overhead costs would be $23,800 per month except for January when it...
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