Rehm Company manufactures a product that is available in both a deluxe model and a regular model.
Question:
Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the current year, the company has estimated that it will incur $6,000,000 in manufacturing overhead cost and produce 15,000 units of the deluxe model and 120,000 units of the regular model. The deluxe model requires 1.6 hours of direct labor time per unit, and the regular model requires 0.8 hours. Material and labor costs per unit are as follows:
Required:
1. Using direct labor-hours as the base for assigning manufacturing overhead cost to products, compute the predetermined overhead rate. Using this rate and other data from the problem, determine the unit product cost of each model.
2. Management is considering using activity-based costing to apply manufacturing overhead costs to products for external financial reports. The activity-based costing system would have the following four activity cost pools:
Using Exhibit 86 as a guide, compute the predetermined overhead rates (i.e., activity rates) for each of the four activity cost pools.
3. Using the predetermined overhead rates computed in part (2) above, do the following:
a. Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit for each model.
b. Compute the unit product cost of each model (materials, labor, and manufacturing overhead).
4. From the data you have developed in (1) through (3) above, identify factors that may account for the companys decliningprofits.
Step by Step Answer:
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer