Vernon Corporation estimated its overhead costs would be $23,600
per month except for January when it pays the $133,950 annual
insurance premium on the manufacturing facility. Accordingly, the
January overhead costs were expected to be $157,550 ($133,950 +
$23,600). The company expected to use 7,200 direct labor hours per
month except during July, August, and September when the company
expected 9,300 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 3,600 units of
product in each month except July, August, and September, in which
it produced 4,650 units each month. Direct labor costs were $23.50
per unit, and direct materials costs were $10.10 per unit.
Required
A. Calculate a predetermined overhead rate based on direct labor hours.
B. Determine the total allocated overhead cost for January, March, and August.
C. Determine the cost per unit of product for January, March, and August.
D. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $21.50 per unit.
Determine the total allocated overhead cost, the cost per unit of product and the selling price for the product for January, March, and August. Assume that the company desires to earn a gross margin of $21.50 per unit. (Do not round intermediate calculations. Round "Cost per unit" and "Price" to 2 decimal places.)
Total Allocated overhead cost- Jan, March, Aug
Cost per unit- Jan, March, Aug
Price- Jan, March, Aug
(A) Total Overhead = (23600 * 12 month) + 133950 = 417150
Total Direct Labour Hrs = (7200 * 9 month) + (9300 * 3 month) = 92700 hours
Predetermined Overhead rate = 417150 / 92700 = $4.50
(B) Allocated O/H Cost :-
January = 7200 hrs * 4.50 = $32400
March = 7200 hrs * 4.50 = $32400
August = 9300 hrs * 4.50 = $41850
(C) Cost per unit :-
January |
March |
August |
|
Direct Material |
10.10 |
10.10 |
10.10 |
Direct Labour |
23.50 |
23.50 |
23.50 |
Overhead |
(32400/3600 units) =9 |
(32400/3600 units) =9 |
(41850/4650 units) =9 |
Cost per unit |
42.60 |
42.60 |
42.60 |
(D) Selling Price = Cost pu + Margin pu
= 42.60 + 21.50 = $64.10
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