Manufacturing Overhead

Topics: Costs, Activity-based costing, Cost Pages: 3 (492 words) Published: March 5, 2013
P21-7A Gerber Electronics manufactures two large-screen television models: The Royale, which sells for $1,500, and a new model, the Majestic, which sells for $1,200. The production cost per unit for each model in 2012 is shown on the next page. | |Royale |Majestic | |Direct Materials |$ 700 |$420 | |Direct labor ($20 per hour) |100 |80 | |Manufacturing Overhead ($40 per DLH) | 200 | 160 | | Total per unit cost |$1,000 | $660 |

In 2012, Gerber manufactured 30,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $40 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the total direct labor hours (190,000) for the two models.

The gross profit on the model was: Royale $500 ($1,500 - $1,000) and Majestic $540 ($1,200 - $660). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model.

Before finalizing its decision, management asks the controller, Sally Fields, to prepare an analysis using activity-based costing. Sally accumulates the following information about overhead for the year ended December 31, 2012.

| | | | | | |Cost | | | | | | | |Total | |Driver | |Overhead | |Activity | |Cost Driver | |Cost | |Volume | |Rate | |Purchase orders | |Number of orders...
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