Parr Corporation makes three products, X, Y, and Z. Expected overhead costs for the coming year include:
Parr uses direct labor hours as the cost driver to allocate overhead costs. Budgeted direct labor hours for each product are:Product X, 15,000 direct labor hoursProduct Y, 10,000 direct labor hoursProduct Z, 5,000 direct labor hoursRequired:1) Determine the amount of manufacturing overhead that should be allocated to each of the three products.2) Assume that each unit of Product X requires $40 in direct materials and 3 direct labor hours at a rate of $15 per hour. Calculate the budgeted or expected cost of each unit of X.
What will be an ideal response?
1) Allocation rate = $600,000 ÷ 30,000 direct labor hours = $20 per direct labor hour
Overhead allocated to Product X: 15,000 × $20 = $300,000
Overhead allocated to Product Y: 10,000 × $20 = $200,000
Overhead allocated to Product Z: 5,000 × $20 = $100,000
2) Budgeted cost per unit of X = $40 + (3 × $15) + (3 × $20) = $145
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