Elliott Engines Inc produces three productspistons valves an

Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:

Budgeted Volume

Direct Labor Hours

Price

Direct Materials

(Units)

per Unit

per Unit

per Unit

The estimated direct labor rate is $19 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is $186,372.

	Budgeted Volume	Direct Labor Hours	Price	Direct Materials
(Units)	per Unit	per Unit	per Unit
Pistons	7,400	0.18	$52.0	$24.9
Valves	27,000	0.16	10.0	4.0
Cams	1,200	0.30	70.8	28.7

Solution

a) Total factory overhead budgeted $    1,86,372.00 Total budgeted labor hours = 7400*0.18+27000*0.16+1200*0.30 = 6012 Plant wide factory overhead rate = 186372/6012 = $                31.00 b) Pistons Valves Cams Direct labor 3.42 3.04 5.70 Factory overhead cost 5.58 4.96 9.30 c) Sales units 7400 27000 1200 ` Sales 384800 270000 84960 Cost of production: Direct material cost 184260 108000 34440 Direct labor cost 25308 82080 6840 Factory overhead cost 41292 133920 11160 Total cost 250860 324000 52440 Gross profit 133940 -54000 32520 Gross profit % 34.81% -20.00% 38.28% d) Valves give 20% gross loss. Hence, may be dropped after further detailed study.