You notice that no one has created a method to apply overhead to the products, and they are currently being sold without this value added to them. Currently, all overhead is considered an administrative expense on the profit/loss statement as they aren’t sure which product to apply it to. Understanding that this has an impact on reporting, and decision making, you have decided to implement a method of traditional-based costing. You’re pretty sure that using job costing is the way to go.

From what you’ve been told by your support staff, the amount of tires used is a good indicator of how much overhead relates to that product. Of the overhead applied, approximately 30% is variable. For the direct materials, approximately 40% is variable, while only 10% of the direct labor is considered variable. The market is infinite and will accept as many vehicles as you are willing to produce.

1) How many units, of each product, do you need to produce in order to make a profit of $500?

Direct material = 4, Conversion costs= 20, total =24, units =2, cost per unit =12

Estimated Activity
	Fast	Slow	Kinda Slow	MOH ($)
Tires	33	34	13	82
Doors	24	16	20	38
Acutal
DM ($)	10	13	15
DL ($)	12	14	16
MOH
Total
Price ($)	40	50	60
Tires Used	12	33	14
Doors Used	18	22	34