Lincoln Corp. produces three products: Clips, Staples, and Pens. Lincoln uses a plant-wide overhead rate based on machine hours. The following information is available for the next period:
Product: Clips Staplers Pens
Units Produced 3,000 2,000 5,000
Machine Hours (Assembly) 1 3 2
Machine Hours (Packing) 1 1 1
Direct Labor hours (per unit) 2 2 2
Direct Materials cost (per unit) $5.00 $45.00 $15.00
Note that the direct labor wage rate is a flat $20 per hour with no overtime incurred. Also, total overhead costs are $380,000 for the Assembly Department and $200,000 for the Packing Department.
A. Calculate the total product cost per unit of Pens using the plant wide rate.
B. Calculate the total product cost per unit of Pens using the departmental rates.
C. Which method would you recommend and why?