Problem 12-18 Allocation to accomplish smoothing LO 12-1, 12-2, 12-3 Jordan Corp

Question

Problem 12-18 Allocation to accomplish smoothing LO 12-1, 12-2, 12-3 Jordan Corporation estimated its overhead costs would be $23,600 per month except for January when it pays the $192,000 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $215,600 ($192,000+ $23,600), The company expected to use 7,900 direct labor hours per month except during July, August, and September when the company expected 9,300 hours of direct labor each month to build inventories for high demand that normally occurs during the Christmas season. The company's actual direct labor hours were the same as the estimated hours. The company made 3,950 units of product in each month except July, August, and September, in which it produced 4,650 units each month. Direct labor costs were $23 90 per unit, and direct materials costs were $11.50 per unit Required a. Calculate a predetermined overhead rate based on direct labor hours b. Determine the total allocated overhead cost for January, March, and August Determine the cost per unit of product for January, March, and August. d. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $20.80 per unit

Explanation / Answer

a) Predetermined overhead rate = total cost to be allocated / cost driver predetermined overhead rate = 23600*11+215600/7900*9+9300*3 predetermined overhead rate = 475200/99000 predetermined overhead rate = 4.8 per labour hour b)Determine the total allocated overhead cost for jan, march and august Particulars Jan Mar Aug predetermined overhead rate 4.8 4.8 4.8 no of hour per month 7900 7900 9300 Total allocated overhead cost 37920 37920 44640 c) Determine the cost per unit of product for jan march and aug Particulars Jan Mar Aug No of unit produced 3950 3950 4650 direct material cost @11.50 45425 45425 53475 direct labour@23.90 94405 94405 111135 allocated overhead cost 37920 37920 44640 total cost 177750 177750 209250 cost per unit of product 45 45 45 d) Determine the selling price for the product Particulars Jan mar aug cost per unit of prpduct $    45.00 $    45.00 $    45.00 gross margin $    20.80 $    20.80 $    20.80 Selling price of product $    65.80 $    65.80 $    65.80

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