F5 Dec’07 Q1 (d) urgent!!!

Fixed production overheads are ABSORBED on an assembly hour basis.

So, you need to calculate fixed production overhead absorption rate per assembly hour. That is $12/hour.

In order to calculate fixed production overheads per unit, you need to use assembly labour hour for the radio(30/60), multiply by FIXED PRODUCTION OVERHEAD ABSORPTION RATE($12). Not assembly labour hour rate($12.60).

Hope, it will help you.

First, you need to calculate variable overhead using high low method.

Variable overhead = (700,000-620,000)/(23,000-19,000) = $20/hour

Then, calculate fixed overhead.

Total production overhead = Fixed overhead + Variable overhead
620,000 = Fixed overhead + ($20*19,000)
Fixed overhead = $240,000 per month

Annual total assembly hours is given in question. Therefore, you need to calculate annualised fixed overhead.
Annual fixed overhead = $240,000*12 = $2,880,000

Fixed production overhead absorption rate = Annual fixed overhead/Annual assembly hours = $2,880,000/240,000 = $12/hour

Yeah

The assembly labour hour rate($12.60) is needed to calculate the assembly labour cost of the product.

But we need a method of attributing the fixed production overhead to each unit of the product. In question, we have been told that fixed production overheads are absorbed on an assembly hour basis. Therefore, we need to calculate fixed production overhead absorption rate using assembly hour.

Fixed production overhead absorption rate = Fixed Production overhead/Activity level

Here, activity level means total assembly labour hours.