Reference no: EM132918651
2550 Inc. makes two products: product A and product B. Product A is expected to sell 22,000 units and product B 60,000 units next year. A unit of either product requires 0.30 direct labour hours.
The company's total manufacturing overhead for the year is expected to be $5,756,400.00. (Round your answer to 2 decimal points)
Required:
Problem 1. The company currently applies manufacturing overhead to products using direct labour-hours as the allocation base. If this method is followed, how much overhead cost will be applied to each product? Calculate both the overhead cost per unit and the total amount of overhead cost that will be applied to each product or to each unit of Product A and Product B.
Problem 2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For the purpose of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $2,878,200 assigned to product A and $2,878,200 assigned to product B. If this suggestion is followed, how much overhead cost per unit will be applied to each product?
Problem 3. Explain the impact on unit product costs of the switch in costing systems.
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