Applied Overhead and Unit Overhead Cost: Plantwide Rates

Imprimo, Inc., produces two types of ink-jet printers: business and home. Imprimo uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year:

Estimated overhead$2,346,000Expected activity51,000Actual activity (direct labor hours): Business printer15,000 Home printer36,000Units produced: Business printer30,000 Home printer180,000

Required:

1. Calculate the predetermined plantwide overhead rate, using direct labor hours. $_________ per hour

Calculate the applied overhead for each product, using direct labor hours.

Applied overheadBusiness$Home$

2. Calculate the overhead cost per unit for each product. If required, round your answers to the nearest cent.

Overhead CostBusiness$Home$

3. What if the business printer used 30,000 hours (to produce 30,000 units) instead of 15,000 hours (total expected hours remain the same)? Calculate the effect on the profitability of this product line if all 30,000 units are sold.

Profits would

decrease or increase

by $_______(fill in the blank)

Hints:

1. A predetermined overhead rate is calculated using budgeted overhead and budgeted levels of the associated driver. Applied overhead = OH rate x driver for each product.

2. Overhead per unit = above calculated overhead units produced

3. Show the effect of the increase of overhead assigned with the "what-if" numbers.