Question

Daffodil Company produces two products, Flower and Planter. Flower is a high-volume item totaling 20,000 units annually. Planter is a low-volume item totaling only 6,000 units per year. Flower requires one hour of direct labor for completion, while each unit of Planter requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $800,000. Daffodil uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of Planter would be assigned overhead of

A) $25.00.
B) $30.77.
C) $50.00.
D) need more information to compute.

Answer 1

The total annual direct labor hours for Daffodil Company is 32,000. Each unit of Planter would be assigned overhead cost of $50.00 based on the traditional costing system used by the company.

Step-by-step explanation:

The total annual direct labor hours for Daffodil Company can be calculated by summing the direct labor hours for each product. Flower requires one hour of direct labor per unit, so the total direct labor hours for Flower is 20,000. Planter requires two hours of direct labor per unit, so the total direct labor hours for Planter is 6,000 x 2 = 12,000. Therefore, the total annual direct labor hours for Daffodil Company is 20,000 + 12,000 = 32,000.

Based on the traditional costing system used by Daffodil Company, overhead costs are assigned based on direct labor hours. Since each unit of Planter requires 2 hours of direct labor, it would be assigned overhead cost of $800,000 x 2 / 32,000 = $50.00.