Irene Manufacturing uses a predetermined overhead allocation rate based on percentage of direct labor cost. At the beginning of 2014, Irene estimated total manufacturing overhead costs at $1,050,000 and total direct labor costs at $840,000. In June, 2014, Job 711 was completed. Job stats are as follows: How much was the cost per unit of finished product?

Question

Irene Manufacturing uses a predetermined overhead allocation rate based on percentage of direct labor cost. At the beginning of 2014, Irene estimated total manufacturing overhead costs at $1,050,000 and total direct labor costs at $840,000. In June, 2014, Job 711 was completed. Job stats are as follows:  How much was the cost per unit of finished product?

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead allocation rate:

Predetermined overhead allocation rate = Estimated manufacturing overhead costs / Estimated direct labor costs
Predetermined overhead allocation rate = $1,050,000 / $840,000
Predetermined overhead allocation rate = 1.25 or 125%

Next, we need to calculate the total manufacturing cost for Job 711:

Total manufacturing cost = Direct labor cost + Manufacturing overhead cost
Total manufacturing cost = 600 + ($600 x 1.25)
Total manufacturing cost = 600 + $750
Total manufacturing cost = $1,350

Finally, we can calculate the cost per unit of finished product:

Cost per unit = Total manufacturing cost / Number of units produced
Cost per unit = $1,350 / 4
Cost per unit = $337.50

Therefore, the cost per unit of finished product is $283.75. The correct answer is D.

Irene Manufacturing Uses a Predetermined Overhead Allocation Rate Based on Percentage