Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { l c c }
& \text { Product A } & \text { Product B } \
\text { Direct materials } & \$ 20,000 & \$ 15,000 \
\text { Direct labor } & 12,000 & 24,000
\end{array}$$ The company's overhead costs of $54,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)
A) $39,000
B) $93,000
C) $50,000
D) None of the answers are correct.

Question

Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { l c c } 
& \text { Product A } & \text { Product B } \
\text { Direct materials } & \$ 20,000 & \$ 15,000 \
\text { Direct labor } & 12,000 & 24,000
\end{array}$$ The company's overhead costs of $54,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)
A) $39,000
B) $93,000
C) $50,000
D) None of the answers are correct.

Quizplus · Accepted Answer

First, we need to calculate the labor cost per unit for both products:

Labor cost per unit for Product A = ($50,000 / 4,000 units) = $12.50 per unit 
Labor cost per unit for Product B = ($30,000 / 5,000 units) = $6 per unit

Next, we can calculate the total production cost per unit for each product:

Total production cost per unit for Product A = ($12.50 + $3.75 + $5) = $21.25 per unit 
Total production cost per unit for Product B = ($6 + $1.80 + $5) = $12.80 per unit

Finally, we can calculate the amount of production costs assigned to Product A:

Total production cost for Product A = (4,000 units x $21.25 per unit) = $85,000 
54,000 in OverHead has to be divided on the basis of labor. Therefore, Overhead expense applied to 4,000 units of product A = ($54,000 x $12.50/$18.50) = $36,486

Total Production cost for product A = $85,000 + $36,486 = $121,486 
Hence, choice C is the correct answer.

Sheddon Industries Produces Two Products The Company's Overhead Costs of $54,000 Are Allocated Based on as Follows