For many years, Zapro Compnay manufacturing a single product called a mono-relay. Then three years ago, the company automated a portion of its plant at the same time introduced a second product called a bi-relay that has become increasingly popular. The bi-relay is a more complex product, requiring one hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The mono-relay requires only 0.75 hours of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products on the basis of direct labor-hours.
Despite the growing popularity of the company's new bi-relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Maters and labor costs per unit are as follows:
Direct Materials Mono-relay ($35) Bi-relay ($48)
Direct labor (.75 hours and 1.0 hours @ $12/hour) Mono-relay ($9) Bi-relay ($12)
Management estimates that the company will incur $1,000,000 in manufacturing overhead costs during the current year and 40,000 units of the bi-relay will be produced and sold.
REQUIRED:
1.) Compute the predetermined manufacturing overhead rate assuming that the company continues to apply manufacturing overhead cost on the basis of direct labor hours. Using this rate and other data from the problem, determine the unit product cost of each product.