Question

Faz, Inc., manufactures and sells two products: Product X0 and Product W7. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:
Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours
Product X0 2,000 4 8,000
Product W7 440 3 1,320
Total direct labor-hours 9,320

The direct labor rate is $38.60 per DLH. The direct materials cost per unit is $163.50 for Product X0 and $145 for Product W7. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

Expected Activity
Activity Cost Pools Activity Measures Estimated Overhead Cost Product X0 Product W7 Total
Labor-related DLHs $276,078 8,000 1,320 9,320
Production orders orders 19,348 540 740 1,280
Order size MHs 241,614 4,040 4,140 8,180
$537,040

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 XO would be closest to: ________

Answer 1

Answer:

$230.49

Explanation:

To compute the overhead assigned to each unit of product XO, we would first determine the overhead rate, which is shown below;

Overhead rate = Total manufacturing overhead / Total direct labor hours

= $537,040 / 9,320

= $57.62 per hour rate.

Therefore, the overhead allocated amount would be ;

= Overhead rate × Direct labor hours per unit of product X0

= $57.62 × 4

= $230.49