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Calculate the predetermined overhead rate based on units

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Acarda Company makes a composting bin that is subject to wide seasonal variations in demand. Unit product costs are computed on a quarterly basis by dividing each quarter's manufacturing costs (materials, labour, and overhead) by the quarter's production in units. The company's estimated costs, by quarter, for the coming year are given below:


 Quarter


First Second Third Fourth
Direct materials $ 507,600
$ 253,800
$ 126,900
$ 380,700
Direct labour
253,800

126,900

63,450

190,350
Manufacturing overhead
338,400

310,200

296,100

324,300
Total manufacturing costs $ 1,099,800
$ 690,900
$ 486,450
$ 895,350
Number of units to be produced
94,000

47,000

23,500

70,500
Estimated unit product cost $ 11.70
$ 14.70
$ 20.70
$ 12.70

Management finds the variation in unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead, since it is the largest element of cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. After some analysis, you have determined that the company's overhead costs are mostly fixed and therefore show little sensitivity to changes in the level of production.

Required:

Calculate the predetermined overhead rate based on units and direct labour?

Reference no: EM131243979

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