Globe Company produces two products, A1 and B2. A1 is a high-volume item totaling 20,000 units annually. B2 is a low-volume item totaling only 6,000 units per year. A1 requires one hour of direct labor for completion, while each unit of B2 requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $640,000. Globe uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of B2 would be assigned overhead of
a. $20.00.
b. $24.61.
c. $40.00.
d. need more information to compute.
can somebody explain to me how the answer is C?
640,000/32,000 = 20
20*2 = 40
C. 40
Well, it seems like we have a traditional costing system here that assigns overhead costs based on direct labor hours.
We know that total annual direct labor hours are 32,000 (20,000 hours for A1 and 12,000 hours for B2).
Now, we need to figure out how much overhead cost each unit of B2 would be assigned. To do that, we divide the total annual overhead cost ($640,000) by the total annual labor hours (32,000):
$640,000 / 32,000 = $20
So, each hour of direct labor gets assigned overhead of $20. Since each unit of B2 requires 2 hours of direct labor, we multiply $20 by 2 to get the overhead cost per unit of B2:
$20 x 2 = $40
Therefore, each unit of B2 would be assigned overhead of $40.
So, the correct answer is c. $40.00.
Hope that helps!
To calculate the overhead cost assigned to each unit of B2, we need to divide the total annual overhead costs by the total direct labor hours for both products.
Total direct labor hours for both products (A1 and B2) = 32,000 hours
Total annual overhead costs = $640,000
Overhead cost per direct labor hour = Total annual overhead costs / Total direct labor hours
= $640,000 / 32,000
= $20
Since each unit of B2 requires 2 hours of direct labor, the overhead cost assigned to each unit of B2 is:
Overhead cost per unit of B2 = Overhead cost per direct labor hour * Direct labor hours per unit of B2
= $20 * 2
= $40
Therefore, the overhead cost assigned to each unit of B2 is $40, as per option C.
To determine the overhead cost assigned to each unit of B2, we need to calculate the overhead allocation rate first. In this case, the overhead is assigned based on direct labor hours.
The formula for calculating the overhead allocation rate is:
Overhead Allocation Rate = Total Manufacturing Overhead Cost / Total Direct Labor Hours
Given that the expected annual manufacturing overhead costs are $640,000 and the total annual direct labor hours are 32,000, we can calculate the overhead allocation rate:
Overhead Allocation Rate = $640,000 / 32,000 = $20 per direct labor hour
Since each unit of B2 requires 2 hours of direct labor, the overhead cost assigned to each unit of B2 can be calculated as:
Overhead Cost Assigned to each unit of B2 = Overhead Allocation Rate * Direct Labor Hours for B2
= $20 * 2 = $40
Therefore, the correct answer is c. $40.00.