Reference no: EM131727049

Problem - Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company's two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $316,800. During that time, the company produced 14,300 units of the M-008 and 2,200 units of the M-123. The direct costs of production were as follows:

	M-008	M-123	Total
Direct materials	$114,400	$88,000	$202,400
Direct labor	114,400	$44,000	158,400

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows:

Cost Driver	Costs	Activity Level		Total
		M-008	M-123
Number of machine-hours	$149,800	8,000	2,000	10,000
Number of production runs	70,000	20	20	40
Number of inspections	97,000	25	40	65
Total overhead	$316,800

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?