Prime costs 900000 1200000 activity fabrication 5000

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Prime costs £900,000 £1,200,000 Activity: Fabrication 5,000 DLH 6,000 DLH Assembly 9,000 MH 12,000 MH Units produced 7,000 4,000 Required : a. Assume that Rounders applies overhead using a plantwide rate based on direct labour hours. Determine the unit cost of Products 1 and 2. b. Assume that Rounders uses direct labour hours to apply overhead in the Fabrication Department and machine hours to apply overhead in the Assembly Department. Determine the unit cost of Products 1 and 2. ANSWER: a. Unit cost for Product 1: £151.49 per unit (rounded) Unit cost for Product 2: £348.12 per unit Product 1 Product 2 Prime costs £ 900,000 £1,200,000 Overhead applied: 5,000 DLH x £32.08* 160,400 6,000 DLH x £32.08* 192,480 Total cost £1,060,400 £1,392,480 Page 9
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Chapter 7 - Cost Assignment *£850,000/26,500 = £32.08 (rounded) Product 1: £1,060,400/7,000 units = £151.49 per unit Product 2: £1,392,480/4,000 units = £348.12 per unit b. Unit cost for Product 1: £172.14 per unit Unit cost for Product 2: £397.50 per unit Product 1 Product 2 Prime costs £ 900,000 £1,200,000 Overhead applied: Fabrication: 5,000 DLH x £25* 125,000 6,000 DLH x £25* 150,000 Assembly: 9,000 MH x £20** 180,000 12,000 MH x £20** 240,000 Total cost £1,205,000 £1,590,000 *£350,000/14,000 = £25 **£500,000/25,000 = £20 Product 1: £1,205,000/7,000 units = £172.14 per unit Product 2: £1,590,000/4,000 units = £397.50 per unit 32) Kramer Company has decided to use a predetermined rate to assign factory overhead to production. The following predictions have been made for 2004: Total factory overhead costs £150,000 Direct labour hours 40,000 hours Direct labour costs £200,000 Machine hours 60,000 hours Required : a. Compute the predetermined factory overhead rate under three different bases: (1) direct labour hours, (2) direct labour costs, and (3) machine hours. b. Assume that actual factory overhead was £152,500 and that Kramer elected to apply factory overhead to Work in Process based on direct labour hours. If actual direct labour was 42,000 hours for 2004, was factory overhead overapplied or underapplied? By how much? ANSWER: a. (1) Direct labour hours: (£150,000/40,000 hours) = £3.75 per DLH (2) Direct labour costs: (£150,000/£200,000) = 75% of DLC (3) Machine hours: (£150,000/60,000 hours) = £2.50 per MH b. Overhead applied (42,000 × £3.75) £157,500 Actual overhead 152,500 Overapplied overhead by £ 5,000 Page 10
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Chapter 7 - Cost Assignment 33) Crow Company applies factory overhead in its two producing departments using a predetermined rate based on budgeted machine hours in the Mixing Department and based on budgeted labour hours in the Packaging Department. Variable cafeteria costs are allocated to the producing departments based on budgeted number of employees, and fixed costs are allocated based on the capacity number of employees. Variable maintenance costs
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