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Hall, Incorporated manufactures two components, Standard and Ultra, that are designed for the same function, but are made of different metals for operational performance reasons.
Hall, Incorporated manufactures two components, Standard and Ultra, that are designed for the same function, but are made of different metals for operational performance reasons. The metal used in Standard is easy to work with and there are few quality issues or reworking required on the machines. The metal used in Ultra is more difficult to work with and often needs additional machine time and rework.
Data on expected operations and direct costs for the next fiscal year follow:
Standard Ultra Total
Units produced
Direct laborhours used
Machinehours used
Direct materials costs $ $ $
Direct labor costs
The planning process team at Hall, Incorporated has estimated the following manufacturing overhead costs for the next fiscal year:
Account Amount
Administration $
Engineering
Machine operation and maintenance
Miscellaneous
Supervision
Total $
The cost accounting system at Hall, Incorporated calculates product costs by adding allocated overhead to the direct costs of the product. Overhead costs are allocated based on direct laborhours.
Required:
Compute the estimated per unit product costs for the next fiscal year, based on the current cost accounting system.
An analyst on the planning process team suggests that a twostage system would improve the estimated product costs. The analyst suggests that overhead be first assigned to on one of two cost pools: Machine related and labor related. Machinerelated overhead consists of the accounts "Engineering" and "Machine operation and maintenance." Laborrelated overhead consists of the remaining manufacturing overhead. Machinerelated costs would be allocated based on machinehours. Laborrelated overhead would be allocated based on direct labor cost. Compute the estimated per unit product costs for the next fiscal year, based on the system proposed by the analyst.
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