PA$1.$ LO $6\mathrm{.}1$ Colonels uses a traditional cost system and estimates next year$$s overhead will be $$480,000,$ with the estimated cost driver of $240,000$ direct labor hours. It manufactures three products and estimates these costs:

$$

Small

Medium

Large

Units

$32,000$

$12,000$

$4,000$

Direct Material Cost

$$5$

$$8$

$$9$

Direct Labor Hours per Unit

$4$

$6$

$10$

If the labor rate is $$25$ per hour, what is the per$-$unit cost of each product?

Solution

$$

The predetermined overhead cost is $$2$ per direct labor hour $($$$480,000/240,000).$

Small

Medium

Large

Direct Material

$$

$$

$$

Direct Labor

$$

$$

$$

Overhead per Unit

$$

$$

$$

Total Cost per Unit

$$

$$

$$

$$

Solution

Activity

Cost Driver

Fringe benefits

Direct Labor Hour

Electricity

Machine hours

Building Depreciation

Machine hours

Machine maintenance

Machine hours

Heat and air conditioning

Square feet