Julius Manufacturing prices its products at full cost plus 30 percent. The company operates two support departments and two producing departments. Budgeted costs and normal activity levels are as follows: Support Department A's costs are allocated based on square feet, and Support Department B's costs are allocated based on number of employees.
Department C uses direct labor hours to assign overhead costs to products, while Department D uses machine hours.
One of the products the company produces requires 4 direct labor hours per unit in Department C and no time in Department D. Direct materials for the product cost $180 per unit, and direct labor is $80 per unit.
If the direct method of allocation is used and the company follows its usual pricing policy, the selling price of the product would be

Question

Julius Manufacturing prices its products at full cost plus 30 percent. The company operates two support departments and two producing departments. Budgeted costs and normal activity levels are as follows:  Support Department A's costs are allocated based on square feet, and Support Department B's costs are allocated based on number of employees.
Department C uses direct labor hours to assign overhead costs to products, while Department D uses machine hours.
One of the products the company produces requires 4 direct labor hours per unit in Department C and no time in Department D. Direct materials for the product cost $180 per unit, and direct labor is $80 per unit.
If the direct method of allocation is used and the company follows its usual pricing policy, the selling price of the product would be

Quizplus · Accepted Answer

Step 1: Allocate support department costs to producing departments using the given allocation methods.

- Total support department A costs = $216,000
- Total support department B costs = $108,000

Using square feet allocation for support department A:
- Department C: (30,000 sq. ft. / 50,000 sq. ft.) x $216,000 = $129,600
- Department D: (20,000 sq. ft. / 50,000 sq. ft.) x $216,000 = $86,400

Using number of employees allocation for support department B:
- Department C: (60 employees / 120 employees) x $108,000 = $54,000
- Department D: (60 employees / 120 employees) x $108,000 = $54,000

Step 2: Calculate the predetermined overhead rate for each producing department.

- Department C: ($129,600 + $54,000) / 40,000 direct labor hours = $4.35 per direct labor hour
- Department D: ($86,400 + $54,000) / 60,000 machine hours = $2.25 per machine hour

Step 3: Calculate the full cost per unit of the product in Department C.

- Direct materials cost per unit: $180
- Direct labor cost per unit: $80
- Overhead cost per unit: 4 direct labor hours x $4.35 per direct labor hour = $17.40
- Full cost per unit = $180 + $80 + $17.40 = $277.40

Step 4: Calculate the selling price of the product using the company's usual pricing policy.

- Selling price = Full cost x 1.3 = $277.40 x 1.3 = $360.62

Therefore, the closest option is C) $468.00.

Julius Manufacturing Prices Its Products at Full Cost Plus 30