Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows. M-008 M-123 Total Direct materials $100,000 $80,000 $180,000 Direct labor 100,000 40,000 140,000 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows. Cost Driver Number of machine-hours Number of production runs Number of inspections Total overhead Activity Level M-008 M-123 Total 3,000 8,000 10 20 40 60 Costs $120,000 5,000 70,000 10 90,000 20 $280,000 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?
Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct costs of production were as follows. M-008 M-123 Total Direct materials $100,000 $80,000 $180,000 Direct labor 100,000 40,000 140,000 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows. Cost Driver Number of machine-hours Number of production runs Number of inspections Total overhead Activity Level M-008 M-123 Total 3,000 8,000 10 20 40 60 Costs $120,000 5,000 70,000 10 90,000 20 $280,000 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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The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing
overhead was $280,000. During that time, the company produced 12,000 units of the M-008 and 2,000 units of the M-123. The direct
costs of production were as follows.
M-008
M-123
Total
Direct materials $100,000 $80,000 $180,000
Direct labor
100,000 40,000 140,000
Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as
follows.
Cost Driver
Number of machine-hours
Number of production runs
Number of inspections
Total overhead
Activity Level
M-008 M-123
3,000
to
40
Costs
$120,000 5,000
70,000
90,000
$280,000
10
20
Total
8,000
20
60
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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Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step 1: Activity Based Costing
VIEWStep 2: a) Allocation of Machine hours cost under Activity based costing
VIEWStep 3: Allocation of production runs costs under Activity based costing
VIEWStep 4: Allocation of Inspection costs under Activity based costing
VIEWStep 5: Calculation of cost per unit under Activity based costing
VIEWStep 6: b)Allocation of overhead costs based on Direct labour and Calculation of cost per unit
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