Homework SourseAwesome Wood Products manufactures two types of wooden booke
Awesome Wood Products manufactures two types of wooden bookends: plain and hand-carved. The following information about the production process is available
Plain
Number produced 120,000
Machine hours95,000
Inspection hours7,000
Revenues$4,800,000$
Direct costs$3,800,000$
Hand-Carved
Number produced75,000
Machine hours 25,000
Inspection hours35,000
Revenues4,400,000
Direct costs 3,100,000
Total factory overhead is $1,200,000. Of this overhead, $500,000 is related to utilities and the remainder is related to quality control.
Determine the total overhead cost assigned to each type of bookend if overhead is assigned using allocation bases appropriate to the overheadcosts. Calculate the gross profit per unit of each product.
Solution
Allocation of overhead :
| Overhead | Overhead | Allocation base | Expected activity | per hour | Plain | Hand carved |
| Utilities | 500000 | machine hours | 120000 | 4.16 | 395833 | 104167 |
| Quality control | 700000 | Inspection hour | 42000 | 16.67 | 116667 | 583333 |
| Total overhead cost | 512500 | 687500 | ||||
| Direct cost | 3800000 | 3100000 | ||||
| Total cost | 4312500 | 3787500 | ||||
| Revenue | 4800000 | 4400000 | ||||
| Gross profit | 487500 | 612500 | ||||
| Number produced | 120000 | 75000 | ||||
| Gross profit per unit | 4.0625 | 8.167 |
