Reference no: EM132690600
Problem - Product costs and product profitability reports, using a single plantwide factory overhead rate
Flint Engine Parts Inc. (FEP) produces three products-pistons, valves, and cams-for the heavy equipment industry. FEP 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 2012 is as follows:
|
Budgeted Volume (Units)
|
Direct Labor Hours per Unit
|
Price per Unit
|
Direct Materials per Unit
|
|
Pistons
|
6,000
|
0.15
|
$42.00
|
$20.50
|
|
Valves
|
24,000
|
0.10
|
8.50
|
3.25
|
|
Cams
|
1,000
|
0.30
|
56.00
|
24.00
|
The estimated direct labor rate is $25 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for FEP is $108,000.
Required -
a. Determine the plantwide factory overhead rate.
b. Determine the factory overhead and direct labor cost per unit for each product.
c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 2012. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place.
d. What does the report in (c) indicate to you?