Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below. HHRI appoints a new CEO,who decides to increase production targets to 200 batches per year.She also hires a management accountant who decides to apply fixed overhead based on normal capacity and does some research into cost behavior.Basic product data still applies.New information appears below.
$\begin{array}{llr}
\text { Estimated overhead for year } & &{\% \text { fixed }} \
\text { Supervision } & \$ 96,000 & 100 \% \
\text { Indirect materials } & \$ 30,800 & 60 \% \
\text { Equipment depreciation } & \$ 126,240 & 100 \% \
\text { Equipment repairs } & \$ 48,000 & 30 \% \
\text { Plant manager's salary } & \$ 84,500 & 100 \% \
\text { Utilities } &\underline{\$ 27,000} & 20 \% \
& \underline{\underline{\$ 412,540}} &
\end{array}$ If HHRI uses a plant-wide rate based on a single cost pool,which of the following statements is true? (Do not round your intermediate calculations. )

Question

Hercules Hair Restorer Inc.(HHRI)makes many varieties of hair restoration products which are sold under well-known marketing labels.A single batch contains 10,000 8-oz.bottles and takes two days to make.Typically 15 batches are completed per month,for different brands.Basic cost data for the month of January appears below.  HHRI appoints a new CEO,who decides to increase production targets to 200 batches per year.She also hires a management accountant who decides to apply fixed overhead based on normal capacity and does some research into cost behavior.Basic product data still applies.New information appears below.
$\begin{array}{llr}
\text { Estimated overhead for year } & &{\% \text { fixed }} \
\text { Supervision } & \$ 96,000 & 100 \% \
\text { Indirect materials } & \$ 30,800 & 60 \% \
\text { Equipment depreciation } & \$ 126,240 & 100 \% \
\text { Equipment repairs } & \$ 48,000 & 30 \% \
\text { Plant manager's salary } & \$ 84,500 & 100 \% \
\text { Utilities } &\underline{\$ 27,000} & 20 \% \
& \underline{\underline{\$ 412,540}} &
\end{array}$  If HHRI uses a plant-wide rate based on a single cost pool,which of the following statements is true? (Do not round your intermediate calculations. )

Quizplus · Accepted Answer

To find the plant-wide overhead rate, we need to divide the estimated overhead cost by the estimated activity level. Since machine hours and direct labor hours are not given, we can assume that the activity level is based on the number of batches produced.

Estimated annual overhead cost per batch = $412,540 / 200 batches = $2,062.70 per batch

Next, we need to allocate this cost to each bottle produced. Since each batch produces 10,000 bottles, the cost per bottle is:

Overhead cost per bottle = $2,062.70 per batch / 10,000 bottles = $0.20627 per bottle

To find the full cost per bottle, we need to add the direct materials, direct labor, and variable overhead costs. These costs are not given, so we cannot find the full cost per bottle.

For the second part of the question, we need to find the full cost per batch using direct labor hours as the cost driver. Since machine hours are not given, we cannot find the overhead rate using this cost driver.

First, we need to find the total direct labor cost for the month:

Direct labor cost = 6,920 hours x $16.25 per hour = $112,450

Next, we can find the overhead cost per batch using the estimated overhead rate and the number of direct labor hours per batch:

Overhead cost per batch = 160 direct labor hours per batch x $35.564 per hour = $5,690.24 per batch

The total cost per batch is:

Total cost per batch = Direct materials + Direct labor + Variable overhead + Fixed overhead
Total cost per batch = Not given

Therefore, we cannot find the full cost per batch using direct labor hours as the cost driver.

Hercules Hair Restorer Inc If HHRI Uses a Plant-Wide Rate Based on a Single