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    Calculating Manufacturing Overhead

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    I require some assistance calculating manufacturing overhead.

    Mathewson Industries has recently switched its method of applying manufacturing overhead from a single predetermined overhead rate based on direct labor hours to activity-based costing (ABC). Assume that the direct labor rate is $18.00 per hour and that there were no beginning inventories. The following cost drivers and rates have been developed for allocating manufacturing overhead costs:

    Activity Cost Driver Rate
    Material handling Number of parts used $2.00 per part
    Assembly and inspection Number of direct labor hours $25.00 per DLH
    Testing Number of units tested $5.00 per unit

    The following production, costs, and activities occurred during the month of August:

    Direct Material Number of Direct Labor
    Units Produced Cost Parts Used Hours
    6,400 $208,600 142,000 26,480

    A) Calculate the total manufacturing cost and the cost per unit for the month of August.
    B) Assume instead that Mathewson Industries applies manufacturing overhead on the basis of $40.00 per direct labor hours (rather than the ABC method). Calculate the total manufacturing overhead cost applied for the month of August.

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    Solution Summary

    The expert calculates the manufacturing overheads. The productions, costs and activities which occur during the month of August are determined.