Essay on Daniels M3 Problem

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I. Compute plant wide overhead rates

1. What is the company’s single plantwide overhead rate based on direct labor hours?

Assembly overhead cost - $600,000
Finishing overhead cost – 1,200,000 TOTAL $1,800,000

Assembly DLH $12,000
Finishing DLH 20,000 $32,000 / 1,800,000 = $56.25

2. What is the company’s single plantwide overhead rate based on machine hours?

Assembly Man hours - 6,000
Finishing Man hours - 16,000 22,000 / 1,800,000 = 81.8182

3. What are the company’s departmental overhead rates if the assembly department assigns overhead based on direct labor hours and the finishing department assigns overhead based on machine hours?

Department overhead rates Assembly: $600,000 / 12,000 DLH = $50.00 DLH Finishing: $1,200,000 / 16,000 MH = $75.00 MH

II. Using the plantwide overhead rate to assess prices

Overhead costs

Model 145 Model 212

Component overhead 310,194 702,786
Finishing 124,080 341,220
Support 154,668 77,334

Overhead costs

Model 145 Model 212 386.63/unit 320.38/unit

Explanation:

Components $1,004,000 / 6000 MH = 167.33 Machine hour
Finishing $465,300 / 3000 WH = 155.10 Welding hour
Support $232,000 / 450PO = $515.56 Purchasing order

Component Overhead: Model 145 Model 212 1800 MH x 163.33/MH = 301,194 4200 MH x 167.33/MH = 702,786
Finishing:
800WH x 155.10/WH = 124,080 2,200WH x 155.10/WH = 341,220
Support:
300PO x 515.56/PO = 154,668 150PO x 515.56/PO = 77,334

Total overhead cost: $579,942 / 1500 units = $386.63 1,121,340 / 3500 units = $320.38

1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line.

$1,004,000 465,300 232,000
$1,701,300 / 6,000 (machine hrs) = $283.55

(145)

1,800 MH x $283.55/MH = $510,390
510,390 / 1,500 units = 340.26

4,200 MH x $283.55/MH = 1,190,910

2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $250 for Model 145 and $180 for Model 212.

Product Total Cost
Model 145 636.63 /unit
Model 212 500.38 /unit

Explanation: Model 145 Model 212
Material and Labor per unit $250.00 $180.00
Overhead cost per unit 386.63 320.38
Total cost per unit $636.63 $500.38

3. If the market price for Model 145 is $800 and the market price for Model 212 is $470, determine the profit or loss per unit for each model. Comment on the results. Model 145 Model 212
Price per unit $800.00 470.00
Cost per unit 590.26 520.26 $209.74(profit) $50.26 (loss)
Suggest that management look at the manufacturing cost to re-adjust the loss and cut overhead to produce a profit.

III. Using ABC for strategic decisions

1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line.

Product A: 10,000 unit s x .20 DLH/unit = 2000 DLH
Product B: 2,000 units x .25 DLH/unit = 500 DLH
Total direct labors hrs. =2500 DLH

Direct Materials:
Product A: 10,000 units x 2 = 20,000
Product B: 2,000 units x 3 = 6,000

Direct labor:
Product A: 2000 DLH x 24 = 48,000
Product B: 500 DLH x 24 = 12,000

Overhead:
Product A: 2000 DLH x 99.60 = 199,200
Product B: 500 DLH x 996.60 = 49,800

Total Manufacturing cost $267,200 (A) $67,800 (B)

Product A: Number of units (267,200) / 10,000 units = $26.72 per unit
Product B: Number of units (2,000) / 2,000 units = $33.90 per unit

2. If the market
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