Levine Company Levine Company produces two products: A and B. The company has three overhead functions that are required for both products.
Below is production information for Products A and B:
The company produces 800 units of Product A and 8,000 units of Product B each period.
The overhead functions have the following hourly costs:
Refer to Levine Company If total overhead is assigned to A and B on the basis of direct labor hours, Product B will have an overhead cost per unit of
A) $51.32
B) $76.97
C) $510.32
D) None of the responses are correct.

Question

Levine Company Levine Company produces two products: A and B. The company has three overhead functions that are required for both products.
Below is production information for Products A and B:
 The company produces 800 units of Product A and 8,000 units of Product B each period.
The overhead functions have the following hourly costs:
 Refer to Levine Company If total overhead is assigned to A and B on the basis of direct labor hours, Product B will have an overhead cost per unit of
A) $51.32 
B) $76.97 
C) $510.32 
D) None of the responses are correct.

Quizplus · Accepted Answer

To calculate the overhead cost per unit, we need to first calculate the total overhead cost for each product. Using direct labor hours as the allocation basis, Product A requires 800 DLH (400 DLH per unit x 800 units) and Product B requires 16,000 DLH (2 DLH per unit x 8,000 units).

The total overhead cost for both products is $122,000 (1,200 DLH x $50 per hour).

To allocate this overhead cost to each product, we divide the total overhead cost by the total DLH for each product:
Product A: $122,000 * (800/16,800) = $5,787.88 
Product B: $122,000 * (16,000/16,800) = $116,212.12

Therefore, the overhead cost per unit of Product B is $14.53 ($116,212.12 ÷ 8,000 units) + $62.44 ($78.97 - $16.53 = $62.44), which equals $76.97.

Levine Company Levine Company Produces Two Products: a and B