Question

Mckenny, inc manufactures and sells two products: produc P9 and product X2. data concerning the expected production of each product and the expected total labor hours (DLHs) required to produce that output appear below: Expected production Direct labor hours per unit Total direct labor hours
Product P9 200 6.0 1,200
Product X2 100 5.0 500
Total direct labor hours 1,700
The direct labor rate is $28.20 per DLH. The direct materials cost per unit is $140.60 for product P9 and $107.50 for product X2. The company is considering adopting an activity based costing system with the following actiity cost pools, activity masures, and expected activity:
Expected activity
Activity cost pools Activity measures Estimated overhead cost Product P9 Product X2 Total
labor related DLHs $45,084 1,200 500 1,700
production orders orders 119,964 600 700 1,300
order size MHs 459,818 3,200 2,900 6,100
If the company allocates all of its overhead based on direct labor hours using its traditional costing method, the overhead assigned to each unit of product X2 would be closet to:__________.

Answer 1

Answer:

If the company allocates all of its overhead based on direct labor hours using its traditional costing method, the overhead assigned to each unit of product X2 would be closet to:  $ 1837.84

Explanation:

Mckenny, inc Manufacturers

                    Expected        Direct labor             Total direct

                     production     hours per unit          labor hours

Product P9        200                6.0                             1,200

Product X2         100                5.0                               500

Total direct labor hours                                                1,700

                  Expected         Activity                Activity          Estimated

                    Activity            Cost Pools           Measures     OH Cost

Product P9  labor related        DLHs              1,200

Product X2                                                        500

Total                                                                 1700             $45,084

Product P9  production orders Orders          600

Product X2                                                        700

Total                                                                  1300            $119,964

Product P9    order size            MHs            3,200

Product X2                                                     2,900

Total                                                               6,100               $459,818

Total Estimated Overheads                                                $ 624866  

If the company allocates all of its overhead based on direct labor hours using its traditional costing method we will calculate the overhead rate based on direct labor hours and then allocate it to each product as under.

Over head rate = Overhead costs/ No of DLH

Over head rate =$ 624866  /1700= $367.57 per Hour

Over head Costs for X2 = $ 367.57 * 500= $ 183784.12

Now we have to calculate the Overhead per unit for X2

No of units of X2 = 100 (given)

Overhead per unit= Total Overhead for X2/ No of Units

                                =$ 183784.12/100=$ 1837.84