Unit-level (variable) manufacturing costs for Dunmyer Manufacturing Company amount to $4. Fixed manufacturing costs are $4,500 per month. Production workers provided 800 hours of direct labor in January and 1,400 hours in February. Dunmyer expects to use 12,000 hours of labor during the year. It actually produced 1,200 units of product in January and 2,100 units of product in February.
Required
a. For each month, determine the total product cost and the per-unit product cost, assuming that actual fixed overhead costs are charged to monthly production.
b. Use a predetermined overhead rate based on direct labor hours to allocate the fixed overhead costs to each month’s production. For each month, calculate the total product cost and the per-unit product cost.
c. Dunmyer employs a cost-plus pricing strategy. Would you recommend charging production with actual or allocated fixed overhead costs? Explain.