For 2018, Winters Manufacturing uses machineminushours as the only overhead costminusallocation base. The direct cost rate is $ 2 per unit. The selling price of the product is $ 27. The estimated manufacturing overhead costs are $ 220 comma 000 and estimated 20 comma 000 machine hours. The actual manufacturing overhead costs are $ 225 comma 000 and actual machine hours are 25 comma 000. What is the profit margin earned if each unit requires two machineminus hours?

Question

Lexie Friedman

Business

14 July, 02:02

For 2018, Winters Manufacturing uses machineminushours as the only overhead costminusallocation base. The direct cost rate is $ 2 per unit. The selling price of the product is $ 27. The estimated manufacturing overhead costs are $ 220 comma 000 and estimated 20 comma 000 machine hours. The actual manufacturing overhead costs are $ 225 comma 000 and actual machine hours are 25 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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Milton · Answer 1

Profit margin = $3 per unit

Explanation:

The profit margin earned is the difference between selling price and the manufacturing cost

Manufacturing cost per unit = variable cost + fixed overhead cost per unit

overhead absorption rate = estimated overhead/estimated machine hours

=$220,000/20,000 machine hours

= $11 per hour

Manufacturing cost per unit = 2 + (11 * 2) = $24 per unit

Profit margin = 27 - 24

= $3 per unit