Pacifica Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 43,000 units next year and Product L is expected to sell 8,600 units. A unit of either product requires 0.5 direct labor-hours. The company's total manufacturing overhead for the year is expected to be $2,193,000.
Required:
The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this method is followed, how much overhead cost per unit would be applied to each product?

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facundobuzzetti facundobuzzetti · Answer 1 · 2021-03-13T01:21:03+01:00

Answer:

Results are below.

Explanation:

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Total direct labor hours= (43,000 + 8,600)*0.5= 25,800

Predetermined manufacturing overhead rate= 2,193,000 / 25,800

Predetermined manufacturing overhead rate= $85 per direct labor hour

Now, we can allocate overhead to each product:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Product H:

Allocated MOH= 85*(43,000*0.5)

Allocated MOH= $1,827,500

Unitary overhead= 1,827,500 / 43,000= $42.5

Product L:

Allocated MOH= 85*(8,600*0.5)

Allocated MOH= $365,500

Unitary overhead= 365,500 / 8,600= $42.5