Suppose the total machine maintenance cost allocated to a production department is Tsh120,000 and the machine hours recorded in the department are 6,000. If one unit of a product processed requires 5 machine hours. Calculate amount of overhead costs to be assigned to the product.
To calculate the amount of overhead costs to be assigned to the product, we can use the predetermined overhead rate.
Predetermined overhead rate = Total machine maintenance cost / Total machine hours recorded
Predetermined overhead rate = Tsh120,000 / 6,000 hours = Tsh20 per machine hour
Now, we know that one unit of the product requires 5 machine hours. So, the overhead costs assigned to one unit of the product would be:
Overhead costs per unit = Predetermined overhead rate x Machine hours per unit
= Tsh20 per hour x 5 hours
= Tsh100
Therefore, the amount of overhead costs to be assigned to one unit of the product is Tsh100.