Real Cool produces air conditioners in two departments: Assembly and Finishing. Budgeted information follows.

 Real Cool produces air conditioners in two departments: Assembly and Finishing. Budgeted information follows.
 

Department    Budgeted Cost    Allocation Base    Budgeted Usage
Assembly    $ 300,000    Machine hours    6,000    machine hours
Finishing    21,000    Direct labor hours    3,000    direct labor hours

Additional production information for two models of its air conditioners follows.

 

Per unit    Model A    Model T
Selling price    $ 400    $ 420
Direct materials    100    90
Direct labor    150    160
 

     Model A    Model T
Units produced    400         500    
Assembly machine hours per unit    2    MH    3.5    MH
Finishing direct labor hours per unit    3    DLH    4    DLH
 
1a. Compute departmental overhead rates and determine overhead cost per unit for each model.

1b. Use machine hours to allocate budgeted Assembly costs and use direct labor hours to allocate budgeted Finishing costs.

2. Compute the total product cost per unit for each model.

3. For each model, compute the gross profit per unit (selling price per unit minus product cost per unit).

 

Explanation
1a.
Assembly department overhead rate = $300,000/6,000 MH = $50 per MH

Finishing department overhead rate = $21,000/3,000 DLH = $7 per DLH