Oxford Concrete Inc. (OCI) processes and distributes various types of cement. The company buys quarried local rock, limestone, and clay from around the world and mixes, blends, and packages the processed cement for resale. OCI offers a large variety of cement types that it sells in one-kilogram bags to local retailers for small do-it-yourself jobs. The major cost of the cement is raw materials. However, the company’s predominantly automated mixing, blending, and packaging processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labour.

Some of OCI’s cement mixtures are very popular and sell in large volumes, while a few of the recently introduced cement mixtures sell in very low volumes. OCI prices its cements at manufacturing cost plus a 25% markup, with some adjustments made to keep the company’s prices competitive.

Required:

1. Using direct labour-hours as the base for assigning manufacturing overhead cost to products, do the following:

a. Determine the predetermined overhead rate that will be used during the year.

b. Determine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement.

2. Using ABC as the basis for assigning manufacturing overhead cost to products, do the following:

a. Determine the total amount of manufacturing overhead cost assigned to the Normal

Portland cement and to the High Sulphate Resistance cement for the year.

b. Using the data developed in 2(a) above, compute the amount of manufacturing over- head cost per kilogram of the Normal Portland cement and the High Sulphate Resistance cement. Round all computations to the nearest whole cent.

c. Determine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement.

3. Write a brief memo to the president of OCI explaining what you found in (1) and (2) above, and discuss the implications to the company of using direct labour as the base for assigning manufacturing overhead cost to products.