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 $286,400. During that time, the company produced 11,400 units of the M-008 and 2,600 units of the M-123. The direct costs of production were as follows. M-008 M-123 Total Direct materials $ 91,200 $ 104,000 $ 195,200 Direct labor 91,200 52,000 143,200 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 $ 124,900 1,000 9,000 10,000 Number of production runs 70,000 20 20 40 Number of inspections 91,500 15 35 50 Total overhead $ 286,400 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? 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?
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
| M-008 | M-123 | Total | ||||
| Direct materials | $ | 91,200 | $ | 104,000 | $ | 195,200 |
| Direct labor | 91,200 | 52,000 | 143,200 | |||
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 | $ | 124,900 | 1,000 | 9,000 | 10,000 | ||||
| Number of production runs | 70,000 | 20 | 20 | 40 | |||||
| Number of inspections | 91,500 | 15 | 35 | 50 | |||||
| Total overhead | $ | 286,400 | |||||||
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?
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?
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