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Zachary Corporation expects to incur indirect overhead costs of $163,150 per month and direct manufacturing costs of $19 per unit. The expected production activity for the first four months of the year are as follows.


January February March April

Estimated production in units 4,800 8,600 4,600 7,100


Required:

(A) Calculate a predetermined overhead rate based on the number of units of product expected to be made during the first four months of the year.

(B) Allocate overhead costs to each month using the overhead rate computed in Requirement (A).

(C) Calculate the total cost per unit for each month using the overhead allocated in Requirement (B).

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Answer:

Instructions are below.

Explanation:

Giving the following information:

Estimated overhead cost a month= 163,150

Direct manufacturing costs= $19 per unit.

Estimated production in units

January= 4,800

February= 8,600

March= 4,600

April= 7,100

Total= 25,100 units

Total overhead= 163,150*4= $652,600

A) To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 652,600/25,100= $26 per unit

B) To allocate overhead, we need to use the following formula:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

January= 26*4,800= $124,800

February= 26*8,600= $223,600

March= 26*4,600= $119,600

April= 26*7,100= $184,600

C) The total cost per unit is calculated using the allocated overhead and the direct manufacturing cost per unit.

Total cost per unit= unitary overhead + direct manufacturing cost per unit

Because the unitary allocated overhead and direct manufacturing cost per unit remain constant during the four months, the total cost per unit is the same.

Total cost per unit= 26 + 19= $45

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