Question

A factory makes 500,000 shirts and 1,000,000 pants. Direct materials are $3,500,000 and $2,000,000 for pants and shirts, respectively. Direct Labor is $1,300,000 and $500,000 for pants and shirts, respectively. Factory overhead is $4,200,000. The firm pays $20 per hour. The allocation base is direct labor hours. Required: derive the unit costs for a pair of pants and a shirt.

OH Cost OH Rate Total Allocation Base Allocation | Allocated Base Used | OH Object By Object II | Allocation Base Used By Object Allocated OH Object

Answer 1

Direct labor cost for pants = $1,300,000

Direct labor cost for shirts = $500,000

Total present labor cost = Direct labor cost for pants + Direct labor cost for shirts

= 1,300,000+500,000

= $1,800,000

Direct labor rate = $20 per hour

Direct labor hours = Direct labor cost / Direct labor rate

= 1,800,000/20

= 90,000

OH Cost	Total Allocation Base	OH Rate	Allocation Base Used By Object I	Allocated OH Object I	Allocation Base Used By Object II	Allocated OH Object II
4,200,000	90,000	$46.6666666667	65,000	3,033,333	25,000	1,166,667

	Pants	Shirts
Direct materials	3,500,000	2,000,000
Direct labor	1,300,000	500,000
Overheads	3,033,333	1,166,667
Total Costs	7,833,333	3,666,667
Unit cost ( Total cost/Number of units)	7,833,333/1,000,000 = $7.83	3,666,667/500,000 = $7.33

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