Question

Klamath Corp. produces two products: saws and drills. Three activities are used in their manufacture. These activities and their associated costs and bases are as follows: Activity Budgeted Costs Activity Base Stamping $200,000 Machine hours Assembly 400,000 Labor hours Setup 30,000 Number of setups Activity Base Saws Drills Total Machine hours 4,000 6,000 10,000 Labor hours 7,000 13,000 20,000 Number of setups 3 12 15 Units produced 500 600 a. Determine the activity rate for each activity. Stamping $ per machine hour Assembly $ per labor hour Setup $ per setup b. Determine the factory overhead to be allocated to each unit of product. Round your answers to two decimal places, if necessary. Saws $ per unit Drills $ per unit

Answer 1

Solution and Explanation:

Answer 1 Calculation of activity rate is as follows:

Stamping = Budgeted costs divided by Machine tour  

= $200000 / 10000 = $20 machine hour

Assembly = Budgeted costs divided by Labor hour

= $400000 divided by 20000 = $20 labor hour

Setup = Budgeted costs divided by setup

= 30000 / 15 = 2000 setup

Answer 2 Overhead cost per unit = Total overhead cost divided by total units produced .

$\text { Saws }=(((4000 * \ 20)+(7000 * \ 20)+(3 * 2000)) / 500$

Saws = $452 per unit  

$\text { Drills }=(((6000 * \ 20)+(13000 * \ 20)+(12 * 2000)) / 600$

Drills = $673 per unit