Question

Exercise 12-4 Pooling overhead cost LO 12-2 Stuart Manufacturing Company produced 2,600 units of inventory in January 2018. It expects to produce an additional 8,700 units during the remaining 11 months of the year. In other words, total production for 2018 is estimated to be 11,300 units. Direct materials and direct labor costs are $82 and $66 per unit, respectively. Stuart expects to incur the following manufacturing overhead costs during the 2018 accounting period:

Production supplies $ 6,200
Supervisor salary 188,000
Depreciation on equipment 134,000
Utilities 29,000
Rental fee on manufacturing facilities 224,750 Required
1. Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units. 2. Determine the cost of the 2,600 units of product made in January.

Answer 1

Results are below.

Explanation:

Giving the following information:

Total number of units= 11,300

Total overhead= 6,200 + 188,000 + 134,000 + 29,000 + 224,750= $581,950

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 581,950 / 11,300

Predetermined manufacturing overhead rate= $51.5 per unit

Now, we can calculate the total cost of making 2,600 units:

Total cost= (82 + 66 + 51.5)*2,600

Total cost= $518,700