Question

Kenneth Corporation expects to incur indirect overhead costs of $166,400 per month and direct manufacturing costs of $22 per unit. The expected production activity for the first four months of 2013 is as follows.



January February March April
Estimated production in units 4,700 8,700 4,300 7,900


Required
a.
Calculate a predetermined overhead rate based on the number of units of product expected to be made during the first four months of the year.



b.
Allocate overhead costs to each month using the overhead rate computed in Requirement a.



c.
Calculate the total cost per unit for each month using the overhead allocated in Requirement b.

Answer 1

Explanation:

The computation is shown below:

1.  For Predetermined overhead rate

Predetermined overhead rate = (Total estimated manufacturing overhead for 4 months) ÷ (Total number of units)

where,

Total estimated direct manufacturing cost is

= $166,400 × 4 months

= $665,600

And, the total number of units is

= 4,700 units + 8,700 units + 4,300 units + 7,900 units

= 25,600 units

So, the predetermined overhead rate is

= $665,600 ÷ 25,600 units

= $26 per unit

2. Now the allocated cost for each month is shown below:

For January

= 4,700 units × $26

= $122,200

For February

= 8,700 units × $26

= $226,200

For March

= 4,300 units × $26

= $111,800

For April

= 7,900 units × $26

= $205,400

c. Now the total cost per unit is

= $22 + $26

= $48 per unit