Fanning Corporation expects to incur indirect overhead costs of $156,600 per month and direct manufacturing costs of $15 per unit. The expected production activity for the first four months of the year are as follows.

January February March April

Estimated production in units 4,700 7,100 4,900 6,500

Required:

a. Calculate a predetermined overhead rate based on the number of units of product expected to be made during the first four months of the year.

b. Allocate overhead costs to each month using the overhead rate computed in Requirement a.

c. Calculate the total cost per unit for each month using the overhead allocated in Requirement b.

a. Predetermined Overhead Rate = 6.75

b. Cost Allocated Jan 31725 Feb 47925 Mar 33075 Apr 43875

Total Cost per unit Jan 21.75 Feb 21.75 Mar 21.75 APr 21.75

Explanation:

Fanning Corporation

Direct manufacturing costs of $15 per unit

Indirect overhead costs of $156,600 per month

a. Predetermined Overhead Rate = Estimated Overhead Cost / No of Units

Jan = $156,600/4700 + 7100 + 4900 + 6500 = 156600/23,200 = 6.75

b. Cost Allocated

January February March April

Estimated production in units 4,700 7,100 4,900 6,500

Overhead Rate 6.75 6.75 6.75 6.75

Cost Allocated 31725 47925 33075 43875

c. Total Cost per unit

January February March April

Estimated production in units 4,700 7,100 4,900 6,500

Direct manufacturing costs $15 $15 $15 $15

Total Direct Costs 70500 106500 73500 97500

Cost Allocated 31725 47925 33075 43875

Total Cost 102,225 154,425 106575 141375

Total Cost per unit 21.75 21.75 21.75 21.75