Warner Company Ltd. makes three products in three departments. It bases its prices on costs, as...

 

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Warner Company Ltd. makes three products in three departments. It bases its prices on costs, as shown below. Direct materials Direct labour at $8/hr Overhead at $7.80/DLH Total cost Allowance for profit at 15% of cost Selling price Labour time required (hr/unit): Department i Department ii Department iii A $10.00 40.00 Variable overhead per DLH Fixed overhead per year 39.00 89.00 13.35 $102.35 0 1 4 Product B $7.10 $30.00 48.00 46.80 124.80 18.72 $143.52 4 0 2 Department C The overall rate of $7.80 was based on total estimated overhead and total estimated direct labour hours. Data by departments are as follows: $50.00 88.00 85.80 223.80 c) Which figures would you recommend that management use for decision-making purposes? Why? 33.57 $257.37 lii 2 6 3 $4.10 $300,000 $280,000 The firm planned to produce 10,000 units of each product during the current year. Required: a) Verify the $7.80 overhead rate by determining total estimated direct labour hours and total estimated overhead costs. $2.80 $171,000 b) Develop overhead rates for each department and redo the pricing analysis, using the departmental overhead rates to apply overhead. Comment on the differences between the prices you calculated, and the ones given above. Warner Company Ltd. makes three products in three departments. It bases its prices on costs, as shown below. Direct materials Direct labour at $8/hr Overhead at $7.80/DLH Total cost Allowance for profit at 15% of cost Selling price Labour time required (hr/unit): Department i Department ii Department iii A $10.00 40.00 Variable overhead per DLH Fixed overhead per year 39.00 89.00 13.35 $102.35 0 1 4 Product B $7.10 $30.00 48.00 46.80 124.80 18.72 $143.52 4 0 2 Department C The overall rate of $7.80 was based on total estimated overhead and total estimated direct labour hours. Data by departments are as follows: $50.00 88.00 85.80 223.80 c) Which figures would you recommend that management use for decision-making purposes? Why? 33.57 $257.37 lii 2 6 3 $4.10 $300,000 $280,000 The firm planned to produce 10,000 units of each product during the current year. Required: a) Verify the $7.80 overhead rate by determining total estimated direct labour hours and total estimated overhead costs. $2.80 $171,000 b) Develop overhead rates for each department and redo the pricing analysis, using the departmental overhead rates to apply overhead. Comment on the differences between the prices you calculated, and the ones given above.

Answer rating: 100% (QA)

a To verify the 780 overhead rate we need to calculate the total estimated direct labor hours and total estimated overhead costs For Department i Variable overhead per DLH 710 Estimated direct labor h... View the full answer