Question

For 2014, Bakers Manufacturing uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $3.00 per unit. The selling price of the product is $20.00. The estimated manufacturing overhead costs are $240,000 and estimated 40,000 machine hours. The actual manufacturing overhead costs are $300,000 and actual machine hours are 50,000.
1.) Using job costing, the 2014 actual indirect-cost rate is _____.

2.) What is the profit margin earned if each unit requires two machine-hours?

Please be detailed in explaining your solution.

Answer 1

Answer:

1. $6 per machine hour

2. $5 per unit

Explanation:

1.

Indirect cost are those cost which are not directly traceable to the product / department / project. Actual indirect cost rate is the actual incurred cost per unit of activity on which it actually based. Actual Indirect cost rate can be calculated as the Actual indirect cost divided by the Actual indirect expense. As shown below

Actual Indirect cost rate = $300,000 / 50,000 = $6 per machine hour

2.

Profit margin the the net of Selling price and all direct and indirect expenses.  Direct cost is $3 per unit, which the indirect cost is $6 per machine hour, each unit consumes two machine hours.

Selling price        $20

Less:

Direct cost    $3

Indirect cost $12

(2x$6)

Total cost             ($15)

Profit Margin         $5

Profit margin earned each unit is $5