Problem -
Direct materials and direct labor costs are accumulated separately, along with information concerning three manufacturing overhead cost drivers (activities). Assume that the direct labor rate is $18 per hour and that there were no beginning inventories. The following information was available for 2007, based on an expected production level of 50,000 units for the year, which will require 200,000 direct labor hours.

***** Assume instead that Summerset applies manufacturing overhead on a direct labor hours basis (rather than using the activity-based costing system described above). Calculate the total manufacturing cost and the cost per unit of the windows produced during the month of February.

Activity(Cost driver) Budgeted Costs for 2007 Cost Driver Used as Allocated Base CostAllocation Rate
Materials handling $225,000.00 Number of parts used $0.18 per part
Cutting and lathe work $1,875,000.00 Number of parts used $1.50 per part
Assembly and inspection $4,400,000.00 Direct labor hours $22.00 per hour

The following production, costs, and activities occurred during the month of February

Units produced
3,400

Direct Materials Cost
$126,240.00

Number of parts used
74,800

Direct Labor hours
14,320

Direct materials $126,240
Direct labor (14320 hours * $18 per hour) $257,760
Manufacturing overhead:
Materials handling ($0.18 per part * 74,800 parts used) $13,464
Cutting and lathe ($1.50 per part * 74,800 parts used) $112,200
Assembly & inspection ($22.00 labor hr * 14320 hours) $315,040
$440,704
Total manufacturing cost $824,704

Total Manufacturing cost
= Direct materials + Direct labor + Manufacturing overhead
= $126,240 + ($257,760 + $440,704)
= $384,000 + ($440,704)
= $824,704

Cost per unit produced and tested = total mfg. cost / production
= $824,704 / 3,400
= $242.56