Calculate the direct materials cost per unit

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Problem - Telecom Company produces a cell phone that sells for $150, and a smart phone that sells for $350. Last year, total overhead costs of $550,000 were allocated based on direct labor hours. A total of 12,000 direct labor hours were required last year to build 6,000 cell phones (2 hours per unit), and 10,000 direct labor hours were required to build 2,000 smart phones (5 hours per unit). Total direct labor and direct materials costs for last year were:

 

Cell Phone

Smart Phone

Direct materials

$270,000

$160,000

Direct labor

300,000

200,000

Management of Telecom Company would like to use activity-based costing to allocate overhead rather than using one plantwide rate based on direct labor hours. The following estimates are for the activities and related cost drivers identified as having the greatest impact on overhead costs.

Activity

Cost Driver

Estimated Overhead Costs

Estimated Cost Driver Activity

Total

Cell phone

Smart phone

Production runs

Number of production runs

$200,000

20

5

25

Quality inspections

Inspection hours

150,000

600

1,400

2,000

Packaging and shipping

Number of units shipped

200,000

6,000

2,000

8,000

Total

 

$550,000

 

 

 

Required - Calculate the direct materials cost per unit and direct labor cost per unit for each product.

Reference no: EM132462913

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