Question

Fanning Corporation expects to incur indirect overhead costs of $156,600 per month and direct manufacturing costs of $15 per unit. The expected production activity for the first four months of the year are as follows.

January February March April
Estimated production in units 4,700 7,100 4,900 6,500

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

Answer:

a. Predetermined Overhead Rate = 6.75

b.Cost Allocated Jan 31725   Feb    47925  Mar    33075 Apr      43875

Total Cost per unit Jan 21.75  Feb 21.75  Mar 21.75 APr 21.75

Explanation:

Fanning Corporation

Direct manufacturing costs of $15 per unit

Indirect overhead costs of $156,600 per month

a. Predetermined Overhead Rate = Estimated Overhead Cost/ No of Units

Jan= $156,600/4700+ 7100+ 4900+ 6500= 156600/23,200= 6.75

b. Cost Allocated

                                            January      February     March      April

Estimated production in units 4,700       7,100         4,900       6,500

Overhead Rate                          6.75         6.75         6.75          6.75

Cost Allocated                        31725       47925      33075       43875

c. Total Cost per unit

    January      February     March      April

Estimated production in units 4,700       7,100         4,900       6,500

Direct manufacturing costs   $15               $15            $15           $15

Total Direct Costs                70500        106500       73500     97500

Cost Allocated                        31725       47925      33075       43875

Total Cost                          102,225        154,425      106575     141375

Total Cost per unit           21.75               21.75         21.75         21.75