Question

Thornton Corporation expects to incur indirect overhead costs of $171,825 per month and direct manufacturing costs of $12 per unit. The expected production activity for the first four months of the year are as follows.

	January		February		March		April
Estimated production in units	4,500		7,200		4,500		7,500

Required

1. Calculate a predetermined overhead rate based on the number of units of product expected to be made during the first four months of the year.

2. Allocate overhead costs to each month using the overhead rate computed in Requirement a.

3. Calculate the total cost per unit for each month using the overhead allocated in Requirement b.

Answer 1

Answers

• [a]

		Jan	Feb	Mar	April
A	Monthly overhead	$171,825	$171,825	$171,825	$171,825
B = 4500 + 7200 + 4500 + 7500	Total units in 4 months	23,700	23,700	23,700	23,700
C = A/B	Predetremined Overhead rate per unit	$7.25	$7.25	$7.25	$7.25

• [b]

		Jan	Feb	Mar	April
A	Units	4500	7200	4500	7500
B	Predetremined Overhead rate per unit	$7.25	$7.25	$7.25	$7.25
C = A x B	Overhead cost allocated	$32,625	$52,200	$32,625	$54,375

• [c]

		Jan	Feb	Mar	April
A	Total overhead cost per unit	$7.25	$7.25	$7.25	$7.25
B	Manufacturing cost per unit	$12.00	$12.00	$12.00	$12.00
C = A+B	Total cost per unit	$19.25	$19.25	$19.25	$19.25

Answer 2

A. Allocation rate for overhead: 171,825 x 4 = $687,300

    Per unit: (171,825 x 4) / (4500 + 7200 + 4500 + 7500)

    = $29 per unit

B. Allocated Overhead Costs

    January (4500x29) = $130,500

    February = $208,800

    March =$ 130,500

    April = $217,500

    Total = $687,300

C. Total Cost Per Unit

January (184,500/4500)=$41.00

Month	Jan	Feb	Mar	Apr
Num of Units	4,500	7,200	4,500	7,500
Exp Cost
Overhead	$   130,500	$  208,800	$      130,500	$      217,500
Dir Cost	$     54,000	$    86,400	$        54,000	$        90,000
Total Cost	$   184,500	$  295,200	$      184,500	$      307,500
Cost per unit	$       41.00	$      41.00	$           41.00	$           41.00