Seattle Grace Corporation manufactures two models of a medical device: Model 101 and Model 102.

Below is the current year production data for the company:

	Model 101	Model 102
Direct material in units	97,000	113,000
Direct labor in hours	30,000	40,000
Machine hours	26,000	13,000
Number of setups	300	600
Number of devices produced	16,000	8,000

The 210,000 units of material had a total cost of $1,365,000. Direct labor is $17 per hour. The company has total overhead production costs of $1,850,000.

a. If Seattle Grace Corporation applies factory overhead using direct labor hours, compute the total production cost and the unit cost for each model.

b. Assume that Seattle Grace Corporation has established the following activity centers, cost drivers, and costs to apply factory overhead.

Cost Pool	Cost Driver	Cost	Volume
Equipment Maintenance	# of machine hours	$585,000	39,000
Production Setup	# of setups	$125,000	900
Material Handling	Units of Materials	$540,000	210,000
Transportation Costs	# of devices produced	$600,000	24,000

Compute the total cost and the unit cost for each model.

c. Explain why the unit cost for each model is different across the three methods of overhead application. How can such information benefit an organization?

Answer rating: 100% (QA)

c Allocation as per the overall predetermined overhead rate considers the total figures i... View the full answer