Reference no: EM133185964

Question - Zain Products manufactures fishing equipment for recreational uses. The plant produces the company's two versions of a special reel used for river fishing. The two models are the XY, a basic reel, and the ZM, 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 $280,000. During that time, the company produced 12,000 units of the XY and 2,000 units of the ZM. The direct costs of production were as follows:

XY ZM Total

Direct Materials $100,000 $80,000 $180,000

Direct labor $100,000 40,000 $140,000

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

Cost Driver Costs Activity Level XY ZM Total

Number of machine hours $120,000 5,000 3,000 8,000

Number of production runs 70,000 10 10 20

Number of inspections 90,000 20 40 60

Total overhead $280,000

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 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?