Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires greater oversight in the production process. Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the market. Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month manufacturing overhead was $208,800. During that time, the company produced 9,280 units of Model SF-08 and 2,320 units of Model SF-48. The direct costs of production were as follows: SF-08 SF-48 Total Direct materials $ 185,600 $ 104,400 $ 290,000 Direct labor 139,200 92,800 232,000 Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last month were as follows: Cost Driver Overhead Costs Activity Level Total SF-08 SF-48 Direct material costs $ 58,000 185,600 104,400 290,000 Number of production runs 62,640 20 40 60 Number of inspections 88,160 8 11 19 Total overhead $ 208,800 Required: How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?
Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the materials and the precision to which they are produced. The SF-48 model is used in applications where the precision is critical and thus requires greater oversight in the production process.
Although sales remain reasonably strong, managers at SFG have noticed that the company is meeting more resistance to the pricing for SF-08, although there seems to be little need for negotiation on the price of the SF-48 model. As a result, the marketing manager at SFG has asked the financial staff to review the costs of the two products to understand better what might be happening in the market.
Manufacturing
| SF-08 | SF-48 | Total | |
|---|---|---|---|
| Direct materials | $ 185,600 | $ 104,400 | $ 290,000 |
| Direct labor | 139,200 | 92,800 | 232,000 |
Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last month were as follows:
| Cost Driver | Overhead Costs | Activity Level | Total | |
|---|---|---|---|---|
| SF-08 | SF-48 | |||
| Direct material costs | $ 58,000 | 185,600 | 104,400 | 290,000 |
| Number of production runs | 62,640 | 20 | 40 | 60 |
| Number of inspections | 88,160 | 8 | 11 | 19 |
| Total overhead | $ 208,800 |
Required:
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How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?
-
How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?
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