Illiad Inc. has a total of $2,362,500 in production overhead costs. The company\
ID: 2344335 • Letter: I
Question
Illiad Inc. has a total of $2,362,500 in production overhead costs. The company's products and related statistics follow
Product A Product B
Direct Material In Pounds 139,500 190,500
Direct Labor Hours 30,000 37,500
Machine Hours 52,500 22,500
Number of Setups 430 860
Number of Units Produced 15,000 7,500
Additonal data. The 330,000 pounds of material were purchased for $544,500. One direct labor hour costs $12.
a. Assume that Illiad Inc. uses direct labor hours to apply overhead to products. Determine the total cost for each product and the cost per unit.
b. Assume that Illiad Inc uses machine hours to apply overhead to products. Determine the total cost for each product and the cost per unit.
c. Assume that Illiad Inc. use the following activity centers, cost drivers, and costs to apply overhead to products.
Cost Pool Cost Driver Cost
Utilities #of machine hours $750,000
Setup # of setups $193,500
Material Handling #pounds of material $1,419,000
Explanation / Answer
a) using direct labor hours to apply overhead
Overhead Cost of Product A =$2,362,500 *30,000/( 30,000 +37,500) = $1,050,000
Cost per unit =$1,050,000/15,000= $70.00
Overhead Cost of Product B =$2,362,500 *37,500/( 30,000 +37,500) = $1,312,500
Cost per unit = $1,312,500/7500= $175
b)using machine hours to apply overhead
Overhead Cost of Product A =$2,362,500 * 52,500/( 52,500+ 22,500) = $1,653,750
Cost per unit = $1,653,750/15,000= $110.25
Overhead Cost of Product B =$2,362,500 *22,500/(52,500+ 22,500) = $708,750
Cost per unit = $708,750/7500= $94.50
c)
Product A
Cost of Utilities #of machine hours= $750,000* 52,500/( 52,500+ 22,500)
= $525,000
Cost of Setup # of setups =$193,500*430/(430+ 860)= $64,500
Cost of Material Handling #pounds of material =$1,419,000*139,500/(139,500+ 190,500) = $599,850
Total overhead cost of Product A =$525,000 +$64,500 +$599,850 = $1,189,350
Total overhead cost of Product B =$2,362,500-$1,189,350 = $1,173,150