Question

Flawless Cosmetic Company manufactures and distributes several different products. The company currently uses a plantwide allocation method for allocating overhead at a rate of $6 per direct labor hour. Loren is the department manager of the Makeup Department which produces Products – Concealer (C) and Glow Cream (GC). Jennifer is the department manager of the Hair Care Department which manufactures Product – Shampoo (S). The product costs (per case of 24 bottles) and other information are as follows: Products C GC S Direct materials $ 90.00 $ 80.00 $ 42.00 Direct labor 50.00 30.00 15.00 Overhead 20.00 25.00 17.00 $160.00 $135.00 $74.00 Machine hours 5 3 4 Number of cases (per year) 350 550 650 If Flawless changes its allocation basis to machine hours, what is the total product cost per case for Product GC? a. $166.80 b. $156.20 c. $150.90 d. $125.90

Answer 1

Answer:

Option (D) is correct.      

Explanation:

Total Overhead Cost:

= (Overhead × Number of cases) for all products

= (20 × 350) + (25 × 550) + (17 × 650)

= 31,800

Total Machine Hours:

= Machine hours × Number of cases

= (5 × 350) + (3 × 550) + (4 × 650)

= 6,000

Overhead Rate:

= Total Overhead Cost ÷ Total Machine Hours

= 31,800 ÷ 6,000

= 5.30

Total product cost per case for Product GC:

= Direct Material + Direct Labor + Overhead

= 80 + 30 + (Machine hours × Overhead Rate)

= 80 + 30 + (3 × 5.3)

= 80.00 + 30.00 + 15.90

= $125.90