Outer Limits, Inc. produces fencing units which require two processes, A and B, to complete. The best-selling type of fence is made of PVC. Information related to the 8,000 units of pvc fencing produced annually is shown below.
Outer Limits total expected overhead costs and related overhead data are shown below. The company uses departmental overhead rates based on machine hours in department A and direct labor hours in department B.
Determine the total amount of overhead assigned to each unit of PVC fencing.
Dept. A rate: $54,600/6,500 MH = $8.40 per MH
Dept. B rate: $67,060/7,000 DLH = $9.58 per DLH
Dept. A MH per unit: 2,000 MH/8,000 units = .25 MH per unit
Dept. B DLH per unit: 4,000 DLH/8,000 units = .50 DLH per unit
Dept. A overhead assigned: .25 MH x $8.40 per MH = $2.10 per unit
Dept. B. overhead assigned: .50 DLH x $9.58 per DLH = $4.79 per unit
Total overhead assigned: $2.10 + $4.79 = $6.89 per unit
Alternate calculation:
Dept. A: [(2,000 MH/6,500 MH) x $54,600]/8,000 units = $2.099 per unit
Dept. B: [(4,000 DLH/7,000 DLH) x $67,060]/8,000 units = $4.789 per unit
Total overhead assigned: $2.10 + $4.79 = $6.89 per unit
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