Seco, Inc., produces two types of clothes dryers: deluxe and regular. Seco uses a plantwide rate based on direct labour hours to assign its overhead costs. The company has the following estimated and actual data for the coming year: Estimated overhead $2,000,000 Expected activity 50,000 Actual activity (direct labour hours): Deluxe dryer 10,000 Regular dryer 40,000 Units produced: Deluxe dryer 20,000 Regular dryer 200,000 Required: Calculate the predetermined plantwide overhead rate and the applied overhead for eachproduct, using direct labour hours. Calculate the overhead cost per unit for each product. What if the deluxe product used 20,000 hours (to produce 20,000 units) instead of 10,000hours (total expected hours remain the same)? Calculate the effect on the profitability of thisproduct line if all 20,000 units are sold, and then discuss the implications of this outcome.
Seco, Inc., produces two types of clothes dryers: deluxe and regular. Seco uses a plantwide rate based on direct labour hours to assign its overhead costs. The company has the following estimated and actual data for the coming year: Estimated overhead $2,000,000 Expected activity 50,000 Actual activity (direct labour hours): Deluxe dryer 10,000 Regular dryer 40,000 Units produced: Deluxe dryer 20,000 Regular dryer 200,000 Required: Calculate the predetermined plantwide overhead rate and the applied overhead for eachproduct, using direct labour hours. Calculate the overhead cost per unit for each product. What if the deluxe product used 20,000 hours (to produce 20,000 units) instead of 10,000hours (total expected hours remain the same)? Calculate the effect on the profitability of thisproduct line if all 20,000 units are sold, and then discuss the implications of this outcome.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Seco, Inc., produces two types of clothes dryers: deluxe and regular. Seco uses a plantwide rate based on direct labour hours to assign its
|
Estimated overhead |
$2,000,000 |
|
Expected activity |
50,000 |
|
Actual activity (direct labour hours): |
|
|
Deluxe dryer |
10,000 |
|
Regular dryer |
40,000 |
|
Units produced: |
|
|
Deluxe dryer |
20,000 |
|
Regular dryer |
200,000 |
Required:
- Calculate the predetermined plantwide overhead rate and the applied overhead for eachproduct, using direct labour hours.
- Calculate the overhead cost per unit for each product.
- What if the deluxe product used 20,000 hours (to produce 20,000 units) instead of 10,000hours (total expected hours remain the same)? Calculate the effect on the profitability of thisproduct line if all 20,000 units are sold, and then discuss the implications of this outcome.
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