Manteca, Inc., produces two types of speakers: Deluxe and regular. Manteca uses a plantwide rate based on direct labor hours to assign its overhead costs. The company has the following estimated and actual data for the coming year:
- Estimated overhead $750,000
- Expected Activity 25,000
- Actual Activity (direct labor hours):
- Deluxe speaker 5,000
- Regular speaker 20,000
- Units produced:
- Deluxe speaker 10,000
- Regular speaker 100,000
1. Calculate the predetermined plantwide overhead rate and the applied overhead for each product, using labor hours.
2. Calculate the overhead cost per unit for each product.
3. What if the deluxe product used 10,000 hours (to produce 10,000 units) instead of 5,000 hours (total expected hours remian the same)? Calculate the effect on the profitability of this product line if all 10,000 units are sold, and then discuss the implications of this outcome.