Yalland Manufacturing Company makes two different products, M and N. The company's two departments are named after the products; for example, Product M is made in Department M. Yalland's accountant has identified the following annual costs associated with these two products:
Financial data
Salary of vice president of production division ................. $160,000
Salary of supervisor Department M .............................. 80,000
Salary of supervisor Department N ................................. 60,000
Direct materials cost Department M ............................... 300,000
Direct materials cost Department N ............................... 420,000
Direct labor cost Department M .................................. 240,000
Direct labor cost Department N .................................... 680,000
Direct utilities cost Department M ................................. 120,000
Direct utilities cost Department N ................................... 24,000
General factorywide utilities .......................................... 36,000
Production supplies ................................................... 36,000
Fringe benefits ....................................................... 138,000
Depreciation ......................................................... 600,000
Nonfinancial data
Machine hours Department M .................................... 5,000
Machine hours Department N ..................................... 1,000
Required
a. Identify the costs that are (1) direct costs of Department M, (2) direct costs of Department N, and (3) indirect costs.
b. Select the appropriate cost drivers for the indirect costs and allocate these costs to Departments M and N.
c. Determine the total estimated cost of the products made in Departments M and N. Assume that
Yalland produced 2,000 units of Product M and 4,000 units of Product N during the year. If Yalland prices its products at cost plus 40 percent of cost, what price per unit must it charge for Product M and for Product N?