1. The company uses a job-order costing system. How would you recommend that manufacturing overhead cost be assigned to production?

2. Recompute the company's unit product costs in accordance with your recommendations in (1) above.

Direct Materials........... $240,000
Direct Labor............... 128,000
Manufacturing Overhead..... 300,000
Total Manufacturing costs.. $668,000

Number of units to be produced... 80,000
Estimated unit product cost...... $8.35

To assign manufacturing overhead costs to production in a job-order costing system, the recommended approach is to use a predetermined overhead rate. Here's how you can compute it:

1. Determine the cost driver: Identify a suitable cost driver that correlates with the manufacturing overhead costs. Typical cost drivers include machine hours, labor hours, or direct labor cost.

2. Estimate the total manufacturing overhead costs: Sum up all the manufacturing overhead costs incurred for the period under consideration. In this case, the total manufacturing overhead costs are $300,000.

3. Calculate the activity base: Determine the total activity base for the selected cost driver. For example, if the cost driver is machine hours, you need to estimate the total machine hours expected to be used during the period.

4. Compute the predetermined overhead rate: Divide the total manufacturing overhead costs by the activity base. The formula is as follows:
Predetermined Overhead Rate = Total Manufacturing Overhead Costs / Total Activity Base

Now that you have the predetermined overhead rate, you can proceed to recompute the unit product costs:

1. Multiply the predetermined overhead rate by the actual activity level for each job to assign manufacturing overhead costs to production.

2. Add the direct materials cost, direct labor cost, and allocated manufacturing overhead to get the total manufacturing cost for each job.

3. Divide the total manufacturing cost by the number of units produced to obtain the new unit product cost.

In your case, let's assume that the cost driver is machine hours, and it is estimated that 100,000 machine hours will be used to produce 80,000 units. The computation would be as follows:

Predetermined Overhead Rate = $300,000 / 100,000 machine hours = $3 per machine hour

Recomputed Unit Product Costs:
Direct Materials........... $240,000
Direct Labor............... 128,000
Manufacturing Overhead..... $3 x 100,000 machine hours / 80,000 units = $3.75 per unit

Total Manufacturing Costs: $240,000 + $128,000 + $3.75 x 80,000 = $668,000

New Estimated Unit Product Cost: $668,000 / 80,000 units = $8.35 per unit