Pierce Carts produces three models of push carts, the Economy, the Standard, and the Deluxe. Data on operations and costs for the month are: Economy Standard Deluxe TotalMachine hours 8,000 16,000 8,000 32,000 Direct labor hours 4,000 12,000 8,000 24,000 Units produced 8,000 4,000 1,000 13,000 Direct material costs$100,000 $80,000 $30,000 $210,000 Direct labor costs 200,000 262,000 138,000 600,000 Manufacturing overhead costs 684,800 Total costs $1,494,800 Required:Compute the total cost for each model, assuming Pierce Carts uses:(a) Direct labor hours to allocate overhead costs.(b) Direct labor costs to allocate overhead costs.(c) Machine hours to allocate

Question

overhead costs.

What will be an ideal response?

Answer 1

(a)
Overhead rate: $684,000 / 24,000 hrs = $28.50/hr.
Economy: $100,000 + $200,000 + ($28.50 × 4,000) = $414,000.
Standard: $80,000 + $262,000 + ($28.50 × 12,000) = $684,000.
Deluxe: $30,000 + $138,000 + ($28.50 × 8,000) = $396,000.

(b)
Overhead rate: $684,000 / $600,000 = 114%
Economy: $100,000 + $200,000 + (114% × $200,000) = $528,000.
Standard: $80,000 + $262,000 + (114% × $262,000) = $640,680.
Deluxe: $30,000 + $138,000 + (114% × $138,000) = $325,320.

(c)
Overhead rate: $684,000 / 32,000 Machine hrs = $21.375/MHr.
Economy: $100,000 + $200,000 + ($21.375 × 8,000) = $471,000.
Standard: $80,000 + $262,000 + ($21.375 × 16,000) = $684,000.
Deluxe: $30,000 + $138,000 + ($21.375 × 8,000) = $339,000.