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?

Question

Amina Chen

Business

3 April, 19:01

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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Answers (1)

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Marely Galvan · Answer 1

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