Question

Budgeted information for the year ended December 31, 2017 is as follows: Budgeted Factory Figures Units to be Produced Direct Materials Direct Manufacturing Labor Manufacturing Overhead Costs TOTAL MANUFACTURING COSTS $ $ Padfolios Business Cards 5,000 20,000 24,500 $ 25,500 $ 41,200 $ 16,800 $ ? $ 65,700 $ 42,300 $ Total 25,000 50,000 58,000 23,000 131,000 $ Actual information for the year ended December 31, 2017 is as follows: | Actual Factory Figures Units Produced Direct Materials Direct Manufacturing Labor Manufacturing Overhead Costs TOTAL MANUFACTURING COSTS Padfolios Business Cards 4,500 23,000 $ 23,000 $ 26,500 $ $ 38,000 $ 17,500 $ ? ? $ $ 61,000 $ 44,000 $ Total 27,500 49,500 55,500 21,500 126,500 Assuming Normal Costing, calculate the budgeted manufacturing overhead rate for 2017 that will be used to allocate overhead into the inventory cost of the products. Budgeted M.OH Rate Using Normal Costing, calculate (1) the total cost of each product line (Padfolios vs. Business Cards) and (2) the cost of a single unit of each product based on the plant-wide overhead rate calculated above. (Actual Direct costs should be traced to the products as identified above. Indirect costs should be allocated to the products based on the Budgeted Overhead Allocation Rate and the Actual Allocation Base.) Padfolios Business Cards Total Direct Material + Direct Labor + Allocated Manufacturing Overhead = Total Manufacturing Costs / Units Produced = Cost per Unit

Padfolio Club makes two products (Padfolios and Business Cards) for students to use during interview season. The company uses a normal costing system with a single manufacturing overhead cost pool (allocated based on direct labor costs), and operates at capacity (i.e. all overhead is allocated to units produced in the year).
Direct Material and Direct Labor is incurred in the factory and is directly traced to the two product lines (Padfolios & Business Cards). Overhead costs (like plant supervision, maintenance and utilities) are incurred in the factory but cannot be directly traced to the two product lines.

Using Normal Costing, calculate (1) the total cost of each product line (Padfolios vs. Business Cards) and (2) the cost of a single unit of each product based on the plant-wide overhead rate calculated above.

Answer 1

1. Predetermined overhead rate is calculating using Direct labor costs.
Budgeted M.OH Rate = $23000 / 58000 = $0.40 per dollar of direct labor

2. Allocating Manufacturing Overhead $0.40 per dollar of direct labor

	Padfolios	Business cards	Total
Direct Material	$                23,000	$                  26,500	$                49,500
Direct labor	$                38,000	$                  17,500	$                55,500
Allocated Manufacturing overhead	$                15,200	$                    7,000	$                22,200
Total Manufacturing Costs	$                76,200	$                  51,000	$             127,200
Units produced	4500	23000
Cost per unit	$                   16.93	$                       2.22

For rounding off error answer can be as below also

	Padfolios	Business cards	Total
Direct Material	$                23,000	$                  26,500	$                49,500
Direct labor	$                38,000	$                  17,500	$                55,500
Allocated Manufacturing overhead	$                15,069	$                    6,940	$                22,009
Total Manufacturing Costs	$                76,069	$                  50,940	$             127,009
Units produced	4500	23000
Cost per unit	$                   16.90	$                       2.21