Exercise 7-14 Jay Krue makes two products, Simple and Complex. As their names suggest, Simple is the more basic product, and Complex comes with all the bells and whistles. The company has always allocated overhead costs to products based on machine hours. Last year, the company implemented an activity-based costing system, and managers determined the following activity pools and rates based on total overhead of $1,485,700:

Rate Assembly $1.25 per direct labor hour

Fabrication $9.75 per machine hour

Setups $18 per batch

Bonding $107,700 direct to Complex

Only the Complex product requires bonding, so all the costs of bonding should be allocated to Complex. The following data relate to both products.

Simple// /Complex

Units produced 128,000// /46,000

Direct labor hours 238,000/// 109,000

Machine hours 51,000/// 32,000

Batches 3,000 ///4,500

Using the traditional method of allocating overhead costs,

allocate overhead cost to the products.

show that the overhead assigned to each product sums to the total company overhead.

determine the overhead cost per unit for each product.

(Round per unit answers to 2 decimal places, e.g. 15.25.)

Simple///Complex

Total Machine hours Overhead rate $ ?////// $ ??????

=

Total overhead to product $?//////// $?///////// $total ?//////////

Simple //////Complex

Total overhead to product $?///////// $?////////

Number of units produced ?///////////?

=

Overhead per unit $?///////// $?//////////

Using the activity-based costing rates,

allocate overhead cost to the products.

show that the overhead assigned to each product sums to the total company overhead.

determine the overhead cost per unit for each product.

(Round per unit answers to 2 decimal places, e.g. 15.25)

Simple/////// Complex

Assembly $?//////// $?////////

Fabrication ?//////////// ?//////////

Setups ?///////// ?//////////

Bonding ?////////////?////////

=

Total overhead $?////////////// $?/////////////////// $?//////////////////

Simple //////Complex

Total overhead to product $?///////////// $?//////////////////

Number of units produced ?////////////////?////////////////////

Overhead per unit $ ?/////////////////// $?////////////////////////