Pooling overhead costs
Jasti Manufacturing Company produced 1,200 units of inventory in January 2011. It expects to produce an additional 8,400 units during the remaining 11 months of the year. In other words, total production for 2011 is estimated to be 9,600 units. Direct materials and direct labor costs are $64 and $52 per unit, respectively. Jasti Company expects to incur the following manufacturing overhead costs during 2011.
Production supplies | $ 4,800 |
Supervisor salary | 192,000 |
Depreciation on equipment | 144,000 |
Utilities | 36,000 |
Rental fee on manufacturing facilities | 96,000 |
Required
a. Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units.
b. Determine the cost of the 1,200 units of product made in January.
c. Is the cost computed in Requirement b actual or estimated? Could Jasti improve accuracy by waiting until December to determine the cost of products?
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