Refer to the problem (and its posted solution). Suppose your supervisor asks you which product costs are more accurate, those when the OH application base is DL hours or those when the application base is machine hours? (Note: this is a bit of a trick question, so answer it carefully.) Anonymous answered this 10,286 answers Was this answer helpful? 30 Pre-determined overhead rate based on direct labor hours Total Overheads $1,457,000 $45.69 $ Total direct labor hours 31,890 per direct labor hour Working note: A Labour hours per unit Total units Total Direct labor hours Overhead cost per unit 1.20 6,000 7,200 $54.83 B 0.30 82,300 24,690 $13.71 (labor hour per unit * overhead rate per labor hour) 1 Labor hour based Direct Material Direct Labor Manufacturing overhead Unit product cost A $15.00 $42.50 $54.83 $112.33 B $9.40 $5.80 $13.71 $28.91 $ B $60.00 Selling price Less: Unit product cost Gross margin A $150.00 $112.33 $37.671 $28.91 $31.09 Pre-determined overhead rate based on machine hours Total Overheads $1,457,000 $8.23 Total machine hours 177,0301 per machine hour Working note: : B Machine hours per unit Total units Total machine hours Overhead cost per unit A 0.70 6,000 4.2001 $5.76 2.100 82,300 172,830 $17.28(Machine hour per unit * overhead rate per machine hour) 2 Machine hour based Direct Material Direct Labor Manufacturing overhead Unit product cost $15.00 $42.50 $5.76 $63.26 B $9.40 $5.80 $17.28 $32.48 Selling price Less: Unit product cost Gross margin per unit A $150.00 $63.26 $86.74 B $60.00 $32.48 $27.52 3 Direct labor hour based Actual direct labor hours Predetermined overhead rate Manufacturing overheads applied 33,480 a $45.69b $1,529,701 a*b = Actual manufacturing overheads Over-applied manufacturing overheads $1,491,200 d $38,501 cd Machine hour based Machine hours Predetermined overhead rate Manufacturing overheads applied 166,600a $ $1,371,118a $8.231b Actual manufacturing overheads Under-applied manufacturing overheads $1,491,2006 $120,082 b-a