Question

Sheddon Industries produces two products. The products' identified costs are as follows:

Product A Product B
Direct materials $ 26,000 $ 21,000
Direct labor 18,000 30,000
The company's overhead costs of $60,000 are allocated based on direct labor cost. Assume 10,000 units of product A and 11,000 units of Product B are produced. What is the cost per unit for product B?
a. $10.05
b. $8.05
c. $10.80
d. None of the answers are correct.

Answer 1

The cost per unit for Product B is $8.05. The correct option is b. $8.05

Step-by-step explanation:

In order to calculate the cost per unit for product B, we need to allocate the overhead costs based on direct labor costs. The total direct labor cost for Product B is $30,000. The total direct labor cost for both products is $18,000 + $30,000 = $48,000.

To find the overhead allocation rate, we divide the total overhead costs of $60,000 by the total direct labor cost of $48,000. The overhead allocation rate is $60,000 / $48,000 = $1.25 per dollar of direct labor cost.

Next, we multiply the overhead allocation rate by the direct labor cost of Product B, which is $30,000. The allocated overhead cost for Product B is $1.25 * $30,000 = $37,500.

To calculate the total cost for Product B, we add the direct materials cost, direct labor cost, and allocated overhead cost. The total cost for Product B is $21,000 + $30,000 + $37,500 = $88,500.

Since 11,000 units of Product B are produced, we divide the total cost by the number of units to find the cost per unit. The cost per unit for Product B is $88,500 / 11,000 = $8.05. The correct option is b. $8.05