Question 1. Arnold Company manufactured two products, A and B, during April. For purposes of product costing, an overhead rate of application of $2.50 per direct-labor hour was used, based on budgeted annual factory overhead of $500,000 and 200,000 budgeted annual direct-labor hours, as follows:
Budgeted Budgeted
Overhead Hours
Department 1 $300,000 100,000
Department 2 200,000 100,000
Total $500,000 200,000
The number of labor hours required to manufacture each of these products was:
Product A product B
In Department 1 3 1
In Department 2 1 3
Total 4 4
During April, production units for products A and B were 1,000 and 3,000.
Required:
(1) Using a plantwide overhead rate, what are total overhead costs assigned to products A and B, respectively?
(2) Using departmental overhead rates, what are total overhead costs assigned to products A and B, respectively?
(3) Assume that materials and labor costs per unit of Product A are $10 and that the selling price is established by adding 40% of absorption costs to cover profit and selling and administrative expenses. What difference in selling price would result from the use of departmental overhead rates?