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Item 3

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the companys two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $329,600. During that time, the company produced 14,100 units of the M-008 and 2,600 units of the M-123. The direct costs of production were as follows.

	M-008		M-123		Total
Direct materials	$	112,800	$	104,000	$	216,800
Direct labor		112,800		52,000		164,800

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.

			Activity Level
Cost Driver		Costs		M-008		M-123		Total
Number of machine-hours	$	148,600		8,000		2,000		10,000
Number of production runs		90,000		20		20		40
Number of inspections		91,000		20		30		50
Total overhead	$	329,600

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?