Singh Company produces two products: a mostly handcrafted soft leather briefcase sold under the label Elegant and a leather briefcase produced largely through automation and sold under the label Fina. The two products use two overhead activities, with the following costs:

Setting up equipment..............................$ 3,000

Machining............................................18,000

The controller has collected the following expected annual prime costs for each briefcase, the machine hours, the setup hours, and the expected production.

Required:
1. Do you think that the direct labour costs and direct materials costs are accurately traced to each briefcase? Explain.
2. Calculate the consumption ratios for each activity.
3. Calculate the overhead cost per unit for each briefcase by using a plantwide rate based on direct labour costs. Comment on this approach to assigning overhead.
4. Calculate the overhead cost per unit for each briefcase by using overhead rates based on machine hours and setup hours. Explain why these assignments are more accurate than using the direct labour costs.

Transcribed Image Text:

Elegant Fina Direct labour $9,000 $3,000 3,000 $3,000 $3,000 3,000 4,500 Direct materials Units Machine hours Setup hours 500 100 100