Leon exchanges an office building which he held as investment property for a bowling alley. His office building has a basis of $
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Unit Product cost: Rascon = $72.62 (approx.)
Parcel = $30.78 (approx.)
Unit product cost under traditional cost accounting:
In the traditional cost accounting system, manufacturing overhead is allocated to products based on direct labour hours. The rate per labour hour is calculated as follows:
Total expected overhead $866,000
Total direct labour hours:
Rascon (0.90 hours × 32,000 units) 28,800 hours
Parcel (0.40 hours × 119,000 units) 47,600 hours
Total direct labour hours =76,400 hours
Manufacturing overhead rate per direct labour hour= $866,000 / 76,400 = $11.3351 (approx.)per direct labour hour
Unit Product Cost is the sum of per unit direct material cost, direct labour cost and allocated overhead as follows:
Rascon Parcel
Direct material $29.70 $22.90
Direct labour $28.80 $4.40
Manufacturing Overhead (0.90 × $11.3351) (0.40 × $11.3351)
$10.20159 $4.53404
Total $68.70159 $31.83404
Answer: Unit Product cost: Rascon = $68.70 (approx.)
Parcel = $31.83 (approx.)
Total expected overhead allocated on the basis of direct labour hours $433,000
Total direct labour hours:
Rascon (0.90 hours × 32,000 units) 28,800 hours
Parcel (0.40 hours × 119,000 units) 47,600 hours
Total direct labour hours =76,400 hours
Manufacturing overhead rate per direct labour hour= $433,000 / 76,400 = $5.6675 (approx.)per direct labour hour
Total expected overhead on the basis of Engineering design time $433,000
Engineering design time:
Rascon 5,800 hours
Parcel 2,900 hours
Total time =8,700 hours
Manufacturing overhead rate = $433,000 / 8,700 = $49.7701 (approx.)
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