XYZ Manufacturing, Inc.
produces three products (Ace, Best, and Champ) in two cost centers,
Machining and Assembly. Each product requires one hour of direct
labor for completion. The following table provides production and
cost data for the past year.
The company wishes to consider using traditional cost center
indirect cost allocation. It determines that the Machining Cost
Center can use machine hours as the allocation basis for overhead
assignment while the Assembly Cost Center can use direct labor
costs instead.
Determine the indirect cost rate for each cost center, and the
unit cost including direct and indirect charges for each
product.
If the Machining Cost Center had 1200 machine hours in
September '19, what would be its indirect cost charge for the
month?
Ace 25,000 2,500
Best 15,000 1,500
Champ 5,000 2,000
Total 45,000 6,000
Number of units Machine hours
Direct materials Direct labor Overhead Machining Assembly Total overhead Tot costs
$1,000,000 375,000
$450,000 225,000
$275,000 75,000
$1,725,000 675,000
900,000 450,000 1,350,000 $3,750,000