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Sunshine Company has a budget $8,000,000 of manufacturing overhead for present year, and 40,000 hours of direct labor (cost of $50/hour). Production of Product A (100,000 units) consumes $320,000 of direct materials, and 7,000 direct labor hours.

1) If overhead is allocated on a basis of direct labor hours, find out unit cost of Product A.

2) Suppose instead that Sunshine uses the ABC system, with three cost drivers: machine hours, materials handling, and setups. Of total overhead cost, 60% is in the machine hour pool (30,000 budgeted hours), 25% is in the materials pool (allocated based on $1,600,000 of total materials budgeted to be used), and 15% in the setup pool (200 budgeted setups). Additionally to the materials and labor given above, Product A used 5,500 machine hours and 57 setups. find out the unit cost of Product A under ABC system. Describe briefly.

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  • Category:- Accounting Basics
  • Reference No.:- M910103

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