Question - Alex Rodriguez is a product manager. Historically, his product has been a mainstay for the firm, with per-unit usage of material and labor staying at the same levels. However, the firm's accounting systems show that over the past five years, this product has become more expensive to make, even after adjusting for changes in the prices of materials and labor. This period is also the time over which the firm aggressively expanded into new product lines and markets.
Alex provides you with the following data:
Number of units made 200,000
Labor hours per unit 24 minutes/unit
Overhead per unit $8.40
Alex also informs you that, under the current scheme, 70% of the firm's total overhead is allocated to his product.
a. Compute the firm's total overhead cost and the overhead rate.
b. Suppose 50% of the overhead relates to labor, meaning that it is appropriate to use labor hours as the cost driver for this pool. An additional 30% relates to batch-level cost; Alex's product consumes 45% of all batch-level activities. Of the product level costs (15% of total), only $100,000 is traceable to Alex's product and the remainder is traceable to other products. The remaining 5% represents facility-level overhead costs. Determine the overhead cost per unit for Alex's product, incorporating this additional information.