P7.32 LO 7.3 7.7 Predetermined plantwide overhead rate; different periods; pricing: manufacturer Star Electronics Ltd calculates its predetermined overhead rate on a quarterly basis. The following estimates were made for next year: Estimated Estimated Quarterly predeter- manufacturing direct labour mined overhead rate overhead hours (per direct labour hour) First quarter $160000 25000 ? Second quarter 128000 16000 ? Third quarter 80.000 12500 2 Fourth quarter 112000 14000 ? Total $480000 67500 The firm's main product, part number A200, requires $160 of direct material and 20 hours of direct labour per unit. The labour rate is $24 per hour. Required 1. Construct an Excel spreadsheet to:

(a) Calculate the firm's quarterly predetermined overhead rate for each quarter of next year.

(b) Determine the cost of one unit of part A200 if it is manufactured in: (i) January (ii) April. 2. Suppose the company's pricing policy calls for a 10 per cent markup on cost. Use your spreadsheet to calculate the price to be charged for a unit of part A200 if it is produced in:

(a) January

(b) April. 3. Use your spreadsheet to calculate the company's predetermined overhead rate for next year if the rate is calculated annually. 4. Based on your answer to requirement 3, what is the cost of a unit of part A200 if it is manufactured in:

(a) January

(b) April? 5. What is the price of a unit of part A200 if the predetermined overhead rate is calculated annually? 6. Which approach would you recommend to management-quarterly overhead rates or an annual rate? Explain your answer.