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The Big Bus Company manufactures two products, Product 1 and Product 2....

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Accounting

The Big Bus Company manufactures two products, Product 1 and Product 2. Product 2 was developed as an attempt to enter a market closely related to that of Product 1. Product 2 is the more complex of the two products, requiring three hours of direct labour time per unit to manufacture compared to one and one-half hours of direct labour time for Product 1. Product 2 is produced on an automated production line. Overhead is currently assigned to the products on the basis of direct labour-hours. The company estimated it would incur a total of $396,000 in manufacturing overhead costs and produce 5,500 units of Product 2 and 22,000 units of Product 1 during the current year. Unit costs for materials and direct labour are:
Product 1 Product 2
Direct Labour $7 $15
Direct material $9 $20
Required:
a. Compute the predetermined overhead rate under the current method of allocation and determine the unit product cost of each product for the current year. (5 marks)

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