Overhead is applied to products on the basis of direct labor-hours. At the beginning of the current year, management estimated that $600,000 in overhead costs would be incurred and the company would produce and sell 1,000 units of the flexible model and 10,000 units of the rigid model. The flexible model requires 2.0 hours of direct labor time per unit, and the rigid model requires 1.0 hours. Direct materials and labor costs per unit are given below:

	Flexible		Rigid
Direct materials cost per unit	$	110.00	$	80.00
Direct labor cost per unit	$	30.00	$	15.00

Compute the Predetermined Overhead Rate using direct labor-hours as the basis for allocating overhead costs to products

POH rate 50 per DLH

Compute the unit product cost for one unit of each model

Flexible 240

Rigid 145

2.

An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows:

Activity Cost Pool and Activity Measure Estimated Overhead Costs Flexible Rigid Total

Purchase Orders $20,000 100 300 400

Rework Requests $10,000 60 140 200

Product Testing $210,000 900 1200 2100

Machine Related $360,000 1500 2500 4000

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$600,000

Determine the total amount of overhead that would be assigned to each model for the year

Total amount of OH

Flexible ?? <----------------- Question

Rigid ?? <------------------ Question

Compute the unit product cost for one unit of each model

Unit product Cost

Flexible 373

Rigid 131.70

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