Question

Sheen Co. manufactures laser printers. It has outlined the following overhead cost drivers. Overhead Costs Pool Cost Driver Overhead Cost Budgeted cost driver Quality control Number of inspections $ 64,800 1,080 Machine operation Machine hours 132,000 1,100 Materials handling Number of batches 900 30 Miscellaneous overhead cost Direct labor hours 48,000 4,000 Sheen Co. has an order for 1,000 laser printers that has the following production requirements: Number of Inspections 175 Machine Hours 180 Number of Batches 5 Direct Labor Hours 650 Use activity-based costing to determine a unit cost for the laser printers

Answer 1

Sheen Co.

The overhead unit cost for the laser printers is:

= $40.05

Step-by-step explanation:

a) Data and Calculations:

Overhead Costs Pool Cost Driver Overhead Budgeted

Cost cost driver

Quality control Number of inspections $ 64,800 1,080

Machine operation Machine hours 132,000 1,100

Materials handling Number of batches 900 30

Miscellaneous Direct labor hours 48,000 4,000

Overhead Rates:

Quality control = $60 ($64,800/1,080)

Machine operation = $120 ($132,000/1,100)

Materials handling = $30 ($900/30)

Miscellaneous overhead costs = $12 ($48,000/4,000)

Quantity of order = 1,000 laser printers

Requirements of the order: Overhead Rate Total

Number of Inspections 175 $60 (175*$60) $10,500

Machine Hours 180 $120 (180*$120) 21,600

Number of Batches 5 $30 (5*$30) 150

Direct Labor Hours 650 $12 (650*$12) 7,800

Total overhead allocated to 1,000 laser printers = $40,050

Unit overhead cost for the printers = $40.05 ($40,050/1,000)