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Allocating overhead cost to accomplish smoothing
Anchorage Corporation expects to incur indirect overhead costs of $75,000 per month and direct manufacturing costs of $11 per unit. The expected production activity for the first four months of 2009 is as follows.
January
February
March
April
Estimated production in units
4,000
7,000
3,000
6,000
Required
a. Calculate a predetermined overhead rate based on the number of units of product expected to be made during the first four months of the year.
b. Allocate overhead costs to each month using the overhead rate computed in Requirement a.
c. Calculate the total cost per unit for each month using the overhead allocated in Requirement b.
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