## Question

###### A factory makes 500,000 shirts and 1,000,000 pants. Direct materials are $3,500,000 and $2,000,000 for pants...

A factory makes 500,000 shirts and 1,000,000 pants. Direct materials are $3,500,000 and $2,000,000 for pants and shirts, respectively. Direct Labor is $1,300,000 and $500,000 for pants and shirts, respectively. Factory overhead is $4,200,000. The firm pays $20 per hour. The allocation base is direct labor hours. Required: derive the unit costs for a pair of pants and a shirt.

OH Cost OH Rate Total Allocation Base Allocation | Allocated Base Used | OH Object By Object II | Allocation Base Used By Object Allocated OH Object

## Answers

Direct labor cost for pants = $1,300,000

Direct labor cost for shirts = $500,000

Total present labor cost = Direct labor cost for pants + Direct labor cost for shirts

= 1,300,000+500,000

= $1,800,000

Direct labor rate = $20 per hour

Direct labor hours = Direct labor cost / Direct labor rate

= 1,800,000/20

= 90,000

OH Cost Total Allocation Base OH Rate Allocation Base Used By Object I Allocated OH Object I Allocation Base Used By Object II Allocated OH Object II 4,200,000 90,000 $46.6666666667 65,000 3,033,333 25,000 1,166,667

PantsShirtsDirect materials 3,500,000 2,000,000 Direct labor 1,300,000 500,000 Overheads 3,033,333 1,166,667 Total Costs 7,833,3333,666,667Unit cost ( Total cost/Number of units) 7,833,333/1,000,000 = $7.83 3,666,667/500,000 = $7.33

Kindly comment if you need further assistance. Thanks‼!

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