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PL currently allocates non-direct costs to product lines based on a...

PL currently allocates non-direct costs to product lines based on a variety of drivers (Appendix I). Caroline would like you to evaluate the current allocations and advise whether or not they are appropriate. Using your recommendations, provide the updated full cost per unit for each product line.

Standard cost summary



Coarse Grade

Fine Grade

Diamond Tip

   Standard unit costs:   Direct materials $1.25  $ 2.25  $ 3.75 Direct labour 0.75  0.90  0.80 Overhead (Note 1)  8.25     9.90     8.80 Total manufacturing costs 10.25 13.05  13.35 Variable selling and administrative costs (Note 2) 0.35  0.55  1.10 Fixed selling and administrative costs (Note 3)  0.26     0.40     0.46 Full cost per unit $10.86 $14.00 $14.91 Labour hours per unit 0.04 0.05 0.06 Machine hours per unit 0.25 0.25 1.00    Unit sales 90,000 330,000 70,000 Selling price per unit $11.00 $14.50 $25.00


Notes:


1. Manufacturing overhead is allocated to products at a predetermined rate based on direct labour in dollars.

  Budgeted overhead  = $3,075,000* Budgeted direct labour   $279,500  = $11.00 per dollar of direct labour hour cost       *90% of total overhead is composed of depreciation, regular machine maintenance, related salaries, and other fixed manufacturing costs. The remaining 10% of overhead costs is variable and includes the costs of operating the machines.         2. Variable selling and administrative costs consist entirely of sales commissions. Commission amounts per unit were negotiated with the salespeople two years ago.        3. Fixed selling and administrative costs are allocated to products at a predetermined rate based on total manufacturing costs.


Budgeted fixed selling and administrative costs =    $184,260  Budgeted total manufacturing costs  $6,142,000 = 3% of manufacturing costs

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