Red Raider Company uses a plantwide overhead rate with direct labor hours as the allocation base. Next year, 400,000 units are expected to be produced requiring 0.9 direct-labor hours each. How much overhead will be assigned to each unit produced given the following estimated amounts?
A) $19.00 per unit
B) $17.10 per unit
C) $139.00 per unit
D) $125.10 per unit
E) None of the choices

Question

Red Raider Company uses a plantwide overhead rate with direct labor hours as the allocation base. Next year, 400,000 units are expected to be produced requiring 0.9 direct-labor hours each. How much overhead will be assigned to each unit produced given the following estimated amounts? 
A) $19.00 per unit 
B) $17.10 per unit 
C) $139.00 per unit 
D) $125.10 per unit 
E) None of the choices

Quizplus · Accepted Answer

First, calculate the predetermined overhead rate:
Total estimated overhead / Total estimated direct labor hours = Predetermined overhead rate
$1,428,000 / (0.9 DLH per unit x 400,000 units) = $4.00 per direct labor hour
Then, assign overhead to each unit:
$4.00 per direct labor hour x 0.9 DLH per unit = $3.60 per unit
Total cost per unit:
Direct materials + Direct labor + Manufacturing overhead = Total cost per unit
Assuming no information is given about direct materials or direct labor costs, the total cost per unit is simply the manufacturing overhead assigned per unit:
$3.60 per unit
However, this is only true if the plantwide overhead rate is the best allocation method for Red Raider Company. If there are significant differences in the overhead costs incurred between departments or products, using a more accurate allocation method would result in more accurate costing information.

Red Raider Company Uses a Plantwide Overhead Rate with Direct