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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

Required:
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.

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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