Question

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $328,800. During that time, the company produced 13,300 units of the M-008 and 2,900 units of the M-123. The direct costs of production were as follows.

	M-008		M-123		Total
Direct materials	$	106,400	$	116,000	$	222,400
Direct labor		106,400		58,000		164,400

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.

			Activity Level
Cost Driver		Costs		M-008		M-123		Total
Number of machine-hours	$	139,300		8,000		2,000		10,000
Number of production runs		90,000		10		30		40
Number of inspections		99,500		25		25		50
Total overhead	$	328,800

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

	M-008 M-123 Total overhead       Total unit cost

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?

How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total unit cost" to 2 decimal places.)

	M-008 M-123 Total overhead Total unit cost

Answer 1

Doaktown Products Requirement a М-008 М-123 Total Rate Direct materials 222400 106400 116000 Direct labor 106400 58000 164400 Overhead costs Machine-hours 139300 13.93 111440 27860 Production runs 22500 2250 67500 90000 1990 Inspections 49750 49750 99500 Total overhead 183690 145110 328800 Total costs 396490 319110 715600 Number of Units 13300 2900 Total unit cost 29.81 110.04 $13.93 per machine-hour $139,300 in machine hour costs 10,000 machine-hours. $2,250.00 per run $90,000 in production run costs 40 total runs $1,990.00 per inspection $99,500 in Inspection costs+50 inspections Requirement b Total Rate M-008 M-123 Direct materials 106400 222400 116000 Direct labor 106400 58000 164400 Total overhead 116000 328800 212800 Total costs 425600 290000 715600 Number of Units 13300 2900 Total unit cost 32 100 200% $328,800 total overhead $164,400 total direct labor

Answer 2

m-008

A) 8,000*13.93= 111,440

2,250*10= 22,500

25*1,990= 49,750

total cost (106,400+106,400)+183,690= 396,490

396,490/13,300= 29.8112781955 or 29.81

B) 425,600/13,300= 32