Problem - Allocation to accomplish smoothing
O'Hara Corporation estimated its overhead costs would be $24,000 per month except or January when it pays the $72,000 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $96,000 ($72,000 + $24,000).The company expected to use 7,000 direct labor hours per month except during July, August, and September when the company expected 9,000 hours of direct labor each month to build inventories or high demand that normally occurs during the holiday season. The company's actual direct labor hours were the same as the estimated hours. The company made 3,500units of product in each month except July, August, and September in which it produced4,500 units each month. Direct labor costs were $24 per unit, and direct materials costs were$10 per unit.
Required:
a. Calculate a predetermined overhead rate based on direct labor hours.
b. Determine the total allocated overhead cost or January, March, and August.
c. Determine the cost per unit of product or January, March, and August.
d. Determine the selling price or the product, assuming that the company desires to earn a gross margin of $20 per unit.