Total 225,000 Budgeted Chair Production and Coat Data Frame Fabrication Cushion Fabrication Basic Number of chairs Direct labor/per chair $ 7.40 $ 6.40 Direct materials per chair 6.70 2.40 Total $14.10 $ 8.80 Executive Number of chairs Direct labor per chair $ 7.50 $ 8.70 Direct materials per chair 6.80 Total $14.30 $14.90 $ 22.90 192,000 6.20 $29.20 Budgeted overhead costs for the year are shown in the accompanying table. Budgeted Overhead Costs Rent $1,680,000 Indirect labor 1,660,000 Indirect materials 1,125,000 Equipment lease payments 1.413.000 Total overhead $5,878,000 Task 1 (4 marks): You took cost accounting in the University of Melbourne and decide to use a single overhead cost pool and a single allocation base to allocation overhead to basic and executive chairs. You executive chairs using above mentioned approach. Please note: When doing calculation, round your answer to the nearest two decimal points Present your calculations in a clear fashion. Task 2 (6 marks): When you present your output to CFO, CFO finds this approach simplistic and asks you to allocate each department's overhead separately. Overhead costs in frame fabrication are allocated to chairs based on direct labor costs, whereas cushion fabrication overhead costs are allocated based on direct material costs. Budgeted overhead costs of each department for the coming year are shown in the accompanying table. Budgeted Overhead Costs Frame Fabrication Cushion Fabrication Rent $ 500,000 $1,180,000 Indirect labor 650,000 1,010,000 Indirect materials 470,000 655,000 Equipment lease payments 1.413.000 Total overhead $1,620,000 $4,258,000 Calculate the unit cost for basic and executive chairs using the two department overhead rates. Explain the difference in the unit costs between the two methods in tasks 1 and 2. Comment on which method is likely to produce more accurate estimates of the unit costs. Task 2 (6 marks): When you present your output to CFO, CFO finds this approach simplistic and asks you to allocate each department's overhead separately. Overhead costs in frame fabrication are allocated to chairs based on direct labor costs, whereas cushion fabrication overhead costs are allocated based on direct material costs. Budgeted overhead costs of each department for the coming year are shown in the accompanying table. Budgeted Overhead Costs Frame Fabrication Cushion Fabrication Rent $ 500,000 $1,180,000 Indirect labor 650,000 1,010,000 Indirect materials 470,000 655,000 Equipment lease payments 1.413.000 Total overhead $1,620,000 $4,258,000 Calculate the unit cost for basic and executive chairs using the two department overhead rates
