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26 November, 14:31

For 2018, Winters Manufacturing uses machineminushours as the only overhead costminusallocation base. The direct cost rate is $ 6 per unit. The selling price of the product is $ 21. The estimated manufacturing overhead costs are $ 275 comma 000 and estimated 40 comma 000 machine hours. The actual manufacturing overhead costs are $ 350 comma 000 and actual machine hours are 50 comma 000. What is the profit margin earned if each unit requires two machineminus hours?

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  1. 26 November, 16:52
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    Profit margin per unit = $1.25

    Explanation:

    Giving the following information:

    The direct cost rate is $ 6 per unit.

    The selling price of the product is $ 21.

    Estimated manufacturing overhead = $275,000

    Estimated machine-hours = 40,000

    Actual machine hours are 50,000

    First, we need to calculate the predetermined overhead rate:

    Predetermined manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

    Predetermined manufacturing overhead rate = 275,000/40,000 = $6.875 per machine hour

    Now, we can allocate overhead:

    Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

    Allocated MOH = 6.875*2 = $13.75

    Finally, the profit margin:

    Profit margin per unit = 21 - 6 - 13.75 = $1.25
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