Question

Digital Storage Concept Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 3,750 direct labor hours. The total indirect labor is budgeted to be $375,000.

Time records from indirect labor employees revealed that they spent 40% of their time setting up production runs and 60% of their time supporting actual production.

The following information about cell phones and tablet PCs was determined from the corporate records:

Number of Setups Direct Labor Hours Units
Cell phones 600 1,875 93,750
Tablet PCs 1,400 1,875 93,750
Total 2,000 3,750 187,500

Determine the indirect labor cost per unit allocated to cell phones and tablet PCs under a single plantwide factory overhead rate system using the direct labor hours as the allocation base.

Answer 1

Answer:

$ 2 per unit each

Explanation:

The computation of the indirect labor cost per unit allocated to cell phones and the tables PCs is shown below:

But before that first we have to find out the rate per hour which is

Rate per hour = Total Labor Cost ÷ Total direct labor Hours

                        = $375,000 ÷ 3750

                        = 100 per hour

Now

Rate per unit for cell phone is

= 1,875 × 100 ÷ 93,750

= $2 per unit

And,

Rate per unit for PC        

= 1,975 × 100 ÷ 93,750

= $2 per unit