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Compute the total cost of manufacture one unit

Question:

Siegel Company manufactures a product that comes in both a deluxe model and a regular model. The company has manufactured the regular model for years; the deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company's profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasingly rapidly.

Overhead is assigned to the products on a basis of direct labour-hours. For 19X1, the current year, the company estimated that it would incur $900,000 in overhead cost and produce 5,000 units of the deluxe model and 40,000 units of the regular model. The deluxe model requires two hours of direct labour time and the regular model requires one hour. Material and Labour Costs are as follows:

Deluxe - Materials = $40//Labour = $14

Regular - Materials = $14//Labour - $7

1. Compute the predetermined overhead rate for 19 X 1, and determine the cost to manufacture one unit of each model.

2. Assume that the company's overhead costs can be traced to four major activities.

These activities and the amount of overhead cost traceable to each for 19 X 1

Purchase Orders Issued = $204,000 Total Cost//Total Events = 600 (Deluxe 200//Regular 400)Quality Inspections Completed = $182,000 Total Cost//Total Events = 7000 (Deluxe 4000//Regular 3000)Scrap/Rework Orders Issued = $379,000 Total Cost//Total Events = 2000 (Deluxe 1000//Regular 1000)

Shipments Made = $135,000// Total Events = 900 (Deluxe 250//Regular 650)

Determine the amount of overhead cost per event or transaction for each of the four preceding activities.

3. Using the data presented or computed in item 2, and using an activity accounting approach, do the following:A) Determine the total amount of overhead cost assignable to each model for 19 X 1. After these totals have been computed, determine the amount of overhead cost per unit of each model.

B) Compute the total cost of manufacture one unit of each model (Materials, Labour, and overhead)

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