Doaktown Products manufactures fishing equipment forrecreational uses. The Miramichi plant produces the company’s twoversions of a special reel used for river fishing. The two modelsare the M-008, a basic reel, and the M-123, a new and improvedversion. Cost accountants at company headquarters have preparedcosts for the two reels for the most recent period. The plantmanager is concerned. The cost report does not coincide with herintuition about the relative costs of the two models. She has askedyou to review the cost accounting and help her prepare a responseto headquarters.
Manufacturing overhead is currently assigned to products basedon their direct labor costs. For the most recent month,manufacturing overhead was $277,600. During that time, the companyproduced 12,100 units of the M-008 and 2,100 units of the M-123.The direct costs of production were as follows.
| M-008 | M-123 | Total |
| Direct materials | $ | 96,800 | $ | 84,000 | $ | 180,800 |
| Direct labor | | 96,800 | | 42,000 | | 138,800 |
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Management determined that overhead costs are caused by threecost drivers. These drivers and their costs for last year were asfollows.
| | | Activity Level | | |
| Cost Driver | | Costs | | M-008 | | M-123 | | Total | |
| Number of machine-hours | $ | 105,600 | | 1,000 | | 9,000 | | 10,000 | |
| Number of production runs | | 80,000 | | 10 | | 30 | | 40 | |
| Number of inspections | | 92,000 | | 15 | | 35 | | 50 | |
| Total overhead | $ | 277,600 | | | | | | | |
|
Required:
a. How much overhead will be assigned to eachproduct if these three cost drivers are used to allocate overhead?What is the total cost per unit produced for each product?
b. How much of the overhead will be assigned toeach product if direct labor cost is used to allocate overhead?What is the total cost per unit produced for each product?
