Question

Product Costs and Product Profitability Reports, using a Single Plantwide Factory Overhead Rate Isaac Engines Inc. produces three products-pistons, valves, and cams-for the heavy equipment industry. Isaac Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 2012 is as follows: Budgeted Volume (Units) 6,000 Direct Labor Hours Per Unit Price Per Unit Direct Materials Per Unit Pistons 0.30 $40 $ 9 Valves 0.50 21 5 13,000 1,000 Cams 0.10 55 20 The estimated direct labor rate is $20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Isaac Engines is $235,200. If required, round all per unit answers to the nearest cent. a. Determine the plantwide factory overhead rate. per dih b. Determine the factory overhead and direct labor cost per unit for each product. Direct Labor Hours Per Unit Factory Overhead Cost Per Unit Direct Labor Cost Per Unit Pistons dih

Answer 1

Part a	Products	Budgeted Volume	Direct labor hours per unit	Direct labor hours
	Pistons	6000	0.30	1800
	Valves	13000	0.50	6500
	Cams	1000	0.10	100
	Total Budgeted Direct labor hours			8400
	Plantwide Factory overhead rate =$235,200 / 8400 hours =$28 per direct labor hour
Part b	Products	Direct labor hours per unit	Factory overhead cost per unit	Direct labor cost per unit
	Pistons	0.30	$                                        8.40	$                                           6.00
	Valves	0.50	$                                      14.00	$                                         10.00
	Cams	0.10	$                                        2.80	$                                           2.00
	Factory overhead cost per unit = $28*Direct labor hours per unit
	Direct labor cost per unit = $20*Direct labor hours per unit
Part c	Isaac Engines Inc.
	Product Line Budgeted Gross Profit Reports
	For the Year ended December 31,20Y2
		Pistons	Valves	Cams
	Sales	$                              240,000	$                                  273,000	$                                       55,000
	Product Costs:
	Direct materials cost	$                                54,000	$                                    65,000	$                                       20,000
	Direct labor cost	$                                36,000	$                                  130,000	$                                         2,000
	Factory overhead cost	$                                50,400	$                                  182,000	$                                         2,800
	Total Product Costs	$                              140,400	$                                  377,000	$                                       24,800
	Gross Profit	$                                99,600	$                                 -104,000	$                                       30,200
	Gross Profit percentage of sales	41.5%	-38.1%	54.9%
Part d	Lowest
	Increase
	Decrease