Managerial Accounting: Predetermined Overhead Rate and Product Costing

MANAGERIAL ACCOUNTING
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Predetermined Overhead Rate
Total overhead manufacturing cost incurred by the company = $ 2,700,000
Direct labor hours per R2D2 model = 2
Direct labor hours per BB8 model = 3
Unit production of R2D2 model annually = 30000
Unit production of BB8 model annually = 5000
Total direct labor hours annually = 30000*2 + 5000*3 = 75,000
Let the overhead manufacturing cost per unit direct labor cost be $X
Hence, 75000X = 2,700,000
Solving the above, X = $36
Traditional Product Costing
One of the key requirement is to highlight the product cost for the two products manufactured by
the company in accordance with the traditional costing method whereby the manufacturing
overhead is assigned as per the direct labor hours used in the manufacturing of the two respective
products (Drury, 2016).
Overhead cost per unit R2D2 = 36*2 = $72
Also, overhead cost per unit BB8 = 36*3 = $108
The unit costing of the two products is shown below.
PARTICUALRS R2D2 BB8
Direct Materials $75 $120
Direct Labor $36 $54