Bradley Company produces two products, Seed and Feed. Seed is a high-volume item totaling 20,000 units annually. Feed is a low-volume item totaling only 6,000 units per year. Seed requires one hour of direct labor for completion, while each unit of Feed requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $960,000. Bradley uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of Feed would be assigned overhead of
$80 ($960,000 / 12,000 DLHs).
I thiknk yjour answer is wrong.Why are you using direct labor hours and not using total annual direct labor hours. I think it should be solve this way --> $960,000/32,000TDLHs =$30
You are correct. I apologize for my mistake. The overhead cost per unit of Feed would be $30, calculated as follows:
Total overhead cost for the year = $960,000
Total annual direct labor hours = 32,000 (20,000 for Seed + 12,000 for Feed)
Overhead cost per direct labor hour = $960,000 / 32,000 = $30
Each unit of Feed requires 2 hours of direct labor, so its overhead cost per unit would be 2 x $30 = $60.
To determine the overhead cost assigned to each unit of Feed, we need to calculate the overhead rate per direct labor hour.
Step 1: Calculate the overhead rate:
Overhead rate = Total annual manufacturing overhead costs / Total annual direct labor hours
In this case, the total annual manufacturing overhead costs are given as $960,000, and the total annual direct labor hours are calculated as 32,000.
Overhead rate = $960,000 / 32,000
Overhead rate = $30 per direct labor hour
Step 2: Calculate the overhead cost assigned to each unit of Feed:
For each unit of Feed, it requires 2 hours of direct labor. Therefore, the overhead cost assigned to each unit of Feed can be calculated using the overhead rate.
Overhead cost per unit of Feed = Overhead rate * Direct labor hours per unit of Feed
Overhead cost per unit of Feed = $30 * 2
Overhead cost per unit of Feed = $60
Therefore, each unit of Feed would be assigned an overhead cost of $60.