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Gibson Corporation estimated its overhead costs would be $23,800 per month except for January when it...

Gibson Corporation estimated its overhead costs would be $23,800 per month except for January when it pays the $192,150 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $215,950 ($192,150 + $23,800). The company expected to use 7,800 direct labor hours per month except during July, August, and September when the company expected 9,100 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 3,900 units of product in each month except July, August, and September, in which it produced 4,550 units each month. Direct labor costs were $24.10 per unit, and direct materials costs were $11.80 per unit.

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 $20.50 per unit.

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Solution: a) Predetermined Overhead rate Estimated Overhead/ Expected Direct labor hours I(192150)+ (23800 12)1/(7800*9)+(9100*3) $ 4.90 9100 Aug 38,220 38,220 $ 44,590 7800 7800 Jan Mar b) Total Allocated Overhead cost @ 4.90 Cost per unit of product: Unit produced: Direct Material @ $11.80 Direct Labor@ $24.10 Manufacturing overhead Total Product Cost Unit produced Cost per unit (Total Cost/ units manufactured) Add: Gross Margin 4550 $ 46,020 $ 46,020 $ 53,690 $ 93,990 $ 93,990 $1,09,655 $ 38,220 $ 38,220 $ 44,590 $1,78,230 $1,78,230 $2,07,935 3900 3900 3900 3900 4550 45.70 45.70 $ 45.70 $ 20.50 $ 20.50 $ 20.50 $ 66.20 66.20 $ 66.20 c) d) Selling Price

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