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CHAPTER SIX

Problem 6-39: Two stage allocation and product costing

Data on operations and costs for October follow:

Units Baseball caps T-shirts Total

Units produced 10,000 5,000 15,000

Direct labor hours 200 120 320

Machine Hours 1,000 800 1,800

Costs

Direct Material $12,000 $8,000 $20,000

Direct labor $4,000 $2,400 $6,400

Manufacturing OH $22,200

The analysis of overhead accounts by the cost accountant follow:-

Account Amount Related

Utilities $4000 Machine hours

Machine depreciation and maintenance 8800 Machine hours

Miscellaneous 3400 Machine hours

Total Machine hours related $ 16,200

Supplies $2800

Purchasing and storing materials 3200

total material related $6000

Required
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a. Compute the predetermined overhead rates assuming that Mets Products uses machine
hours to allocated machine related overhead costs and material costs to allocated material
related overhead costs

b. Compute the total costs of productions and cost per unit for each of the two products for
October.

A. Compute the predetermined overhead rates assuming that Mets Products uses machine
hours to allocated machine related overhead costs and material costs to allocated material
related overhead costs

Cost pool Over head : $22,200

Intermediate cost pools Material related : $ $6000 Machine related : $ 16,200

Cost allocation rule Direct material costs Machine hours

Intermediate cost pools Material related : $ $6000 Machine related : $ 16,200

Cost allocation rule Direct material costs 30 % Machine hours : $ 9

($6,000 / $20,000) =$16,200 / 1800 MHS

Cost objects Baseball T-shirts

DMC= $3,600 ($12000 * $2400 ($8,000 * 30 %)

30 %)

MH= $9,000 ( 1000 hrs $9) $7,200 ( 800 hrs $9)

Allocated overhead $12,600 $9,600

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B. Compute the total costs of productions and cost per unit for each of the two
products for October.

Units Baseball caps T-shirts Total

Units produced 10,000 5,000 15,000

Direct labor hours 200 120 320

Machine Hours 1,000 800 1,800

Costs

Direct Material $12,000 $8,000 $20,000

Direct labor $4,000 $2,400 $6,400

OH @ 30% DMC $3,600 $2400 $6,000

OH @ $9/MH $9,000 $7,200 $16,200

Total MOH 12,600 $9,600 $22,200

Total $28,600 $20,000 $48,600

Cost per unit $2.86 $4

P6-40: Two stage allocation and product costing

Data on operations and costs for October follow:

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Units Hospital Patients Other Patients Total

Units produced 640 860 1,500

Direct labor hours 480 180 660

Equipment Hours Used 240 120 360

Costs

Direct labor $38,400 $10,800 $49,200

Manufacturing OH $49,560

The analysis of overhead accounts by the cost accountant as follows:-

Account Amount Related

Utilities $4,800 Equipment hours

Equipment depreciation and maintenance 8400 Equipment hours

Miscellaneous 3360 Equipment hours

Total Equipment hours related $ 16,560

Supplies $12,600

Indirect labor and supervision 20,400

Total labor hours related $33000

Required

a. Compute the predetermined overhead rates assuming that Owl-Eye uses equipment
hours to allocated equipment e related overhead costs and l costs direct hours to
allocated labor related overhead costs

b. Compute the total costs of productions and cost per unit for each of the two patients
on June

A .Compute the predetermined overhead rates assuming that Owl-Eye uses equipment
hours to allocated equipment e related overhead costs and l costs direct hours to allocated
labor related overhead costs

Cost pool Over head : $$49,56

Intermediate cost pools Labor related : $ 33000 Equipment related : $ 16,560

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Cost allocation rule Direct labor costs equipment hours

Intermediate cost pools Labor related : $ $$33000 Equipment related : $ 16,560

Cost allocation rule Direct labor costs 30 % Machine hours : $ 9

($33000 / $38400) =$16,200 / 1800 MHS

Cost objects Baseball T-shirts

DMC= $3,600 ($12000 * $2400 ($8,000 * 30 %)

30 %)

MH= $9,000 ( 1000 hrs $9) $7,200 ( 800 hrs $9)

Allocated overhead $12,600 $9,600

P6-41

Fin X Sci- X Total

Number of units 10,000 40,000 50,000

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Parts costs per unit $20 $25

Costs 200,000 1,000,000

Total operation costs 30,000 120,000

Total cost 230,000 1,120,000

Number of Units 10,000 40,000

Unit cost $23 $28

Computation of total operation costs

Total direct material $62,000

Total direct labor 17500

Total overhead 70500

Total operation cost $150,000

Number of units assembled 50,000

Operation cost per unit $3

Total operation costs

Number of units assembled 10,000 40,000

Operation cost per unit $3 $3

Total operation costs $30,000 $120,000

P6-42-b

Computation of overhead costs by overhead cost pool

Manufacturing overhead Machine hour Labor cost related Total

related

Utilities $1800 0 $1800

Supplies 0 $5000 5000

Training 0 10000 10000

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Supervision 0 25800 25800

Machine deprecation 32000 0 32000

Plant deprecation 14200 0 14200

Miscellaneous 0 85,300 85,300

Totals $48,000 $126,100 $174100

Computation of machine hour pool rate

Total estimate of overhead $48,000

Estimate of machine hours 6000

Overhead rate per machine hour $8

Computation of machine hour pool rate

Total estimate of overhead $126,100

Estimate of direct labor costs 100,000

Overhead rate as a percentage of 126.1%

labor costs

Computation of product costs

Basic Dominator Total

Direct material $ 10,000 $ 3,750 $ 13,750

Direct labor 64,500 35,500 100,000

Overhead :

Machine related 32,000 16,000 48,000

Labor related 81,335 44,766 126,100

Total overhead $113,335 $60,766 $174,101

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Total cost $ 461,951

Units produced 1,000 250 $369.56

Units cost