Question

Required information [The following information applies to the questions displayed below.) For many years, Thomson Company manufactured a single product called LEC 40. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product called LEC 90 that has become increasingly popular. The LEC 90 is a more complex product, requiring 0.60 hours of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The LEC 40 requires only 0.20 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours. Despite the growing popularity of the company's new LEC 90, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Direct material and direct labor costs per unit are as follows: Direct materials Direct labor (0.20 hours and 0.60 hours @ $10.00 per hour) LEC 40 $28.00 $ 2.00 LEC 90 $44.00 $ 6.00 Management estimates that the company will incur $856,000 in manufacturing overhead costs during the current year and 80,000 units of the LEC 40 and 40,000 units of the LEC 90 will be produced and sold. Required: 1-a. Compute the predetermined overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor-hours. 1-b. Using this rate and other data from the problem, determine the unit product cost of each product.

Answer 1

LEC40 80000 LEC90 40000 0.2 0.6 units produced Required hours of direct labor time per unit direct labor hours units produced *DL time per unit 16000 24000 40000 856000 total direct labor hours =16000+24000 given manufacturing overhead a) answer predetermined overhead rate = manufacturing overhead / total direct labor hours answer b) 21.40 LEC40 28.00 2.00 LEC90 44.00 6.00 direct material per unit direct labor manufacturing overhead =predetermined rate* required hours of direct labor time per unit UNIT PRODUCT COST 4.28 12.84 34.28 62.84