Question 1
Global Measurement Solutions (GMS) specialises in manufacturing precision measuring instruments popular for use by industrial companies. The measuring instruments are produced in two stages: Assembly and Testing
GMS has no beginning inventories as all units produced in the previous year were sold by the end of the year. At the beginning of the year Global has an order for 9,000 units. GMS uses multiple allocation bases, with the predetermined overhead rates based on materials used in assembly and direct labour hours in testing.
The following table contains information on the estimated costs for the year:
|
Assembly
|
Testing
|
|
Budgeted overhead
|
$1,000,000
|
$500,000
|
|
Budgeted material usage
|
2,000,000
|
60,000
|
|
Budgeted direct labour hours
|
150,000
|
100,000
|
|
Budgeted direct labour cost
|
2,250,000
|
1,500,000
|
Additional production information:
|
Assembly
|
Testing
|
|
Materials requestioned
|
$2,100,000
|
$48,000
|
|
Direct labour cost
|
2,600,000
|
1,525,000
|
|
Actual overhead cost
|
1,200,000
|
475,000
|
Direct labour is paid at $20 per hour
Required:
Calculate each of the predetermined overhead rates for the GMS departments.
Calculate the total and per unit cost of producing 9,000 units of GMS's measuring device.
Briefly explain why GMS would use different overhead rates for Assembly and Testing.