FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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 $272,000. During that time, the company produced 11,000 units of the M-008 and 2,400 units of the M-123. The direct costs of production were as follows.

                                                                                M-008                M-123                            Total

Direct materials                                         $ 88,000             $ 96,000                       $ 184,000

Direct labor                                                    88,000                48,000                          136,000

 

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-088      M-123          Total

Number of machine-hours                      $93,500                      8,000        2,000          10,000

Number of productions runs                     80,000                            10            30                  40

Number of inspections                               98,500                            15             35                  50

Total overhead                                         $272,000

 

Required:

  1. 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 produced for each product? (round “Total unit cost” to 2 decimal places.)

                                                 M-008               M-123

Total overhead                    ________          _______    

Total unit cost                     _________       ________      

 

  1. 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?

     M-008            M-123

Total overhead                    _______        _______

Total unit cost                     ________      _______ 

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