Eaton Manufacturing Company produced 1,600 units of inventory in January

Eaton Manufacturing Company produced 1,600 units of inventory in January 2014. It expects to produce an additional 10,400 units during the remaining 11 months of the year. In other words, total production for 2014 is estimated to be 12,000 units. Direct materials and direct labor costs are $64 and $52 per unit, respectively. Eaton Company expects to incur the following manufacturing overhead costs during the 2014 accounting period.

Production supplies ........................................$ 10,000

Supervisor salary ............................................. 160,000

Depreciation on equipment ............................. 65,000

Utilities ................................................................ 20,000

Rental fee on manufacturing facilities ............ 45,000


Required

a. Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units.

b. Determine the cost of the 1,600 units of product made in January.

c. Is the cost computed in Requirement a actual or estimated? Could Eaton improve accuracy by waiting until December to determine the cost of products? Identify two reasons that a manager would want to know the cost of products in January. Discuss the relationship between accuracy and relevance as it pertains to this problem.

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